Fight against price rises sees UK inflation hold steady at 2% in June

The Consumer Prices Index (CPI) inflation rate held firm at 2%, according to the Office for National Statistics (ONS).

This indicates that prices continue to rise, but at a pace the central bank deems acceptable, following nearly three years of above-target inflation contributing to the cost-of-living crisis. June's inflation rate slightly exceeded expectations, as some analysts had anticipated a dip to 1.9%.

The latest data revealed that prices in restaurants and hotels increased more than a year ago, exerting upward pressure on the headline inflation rate. Hotel prices surged by 8.8% compared to the previous month, the ONS reported.

The data also showed rising costs for package holidays, cinemas, theatres, and concerts. Conversely, prices for clothing and footwear declined last month, helping to lower the overall rate. Food and drink inflation also dropped significantly from recent years' highs, registering at 1.5% in June.

At one point, food and drink inflation reached nearly 20% in March last year, as households faced much higher prices in supermarkets and restaurants. Services CPI inflation, which focuses on services-related categories like hospitality and culture and is closely monitored by the Bank’s interest rate-setters, remained unchanged at 5.7% in June. This could pose a challenge for the Bank, as some economists had expected the rate to slow last month.

Anna Leach, chief economist at the Institute of Directors, said the Bank will be relieved by CPI inflation staying on target, but this “relief will be tempered by services inflation holding at 5.7%, well above their expectations.”

She said: “Stickiness in services inflation – a key measure of domestic inflationary pressures – lowers the likelihood of an August rate reduction. All eyes will be on Thursday’s wage data to see whether it will spur a summer rate cut by the Monetary Policy Committee.”

Luke Bartholomew, deputy chief economist for Abrdn, said the Bank of England’s August rate decision sits “on a knife edge” following the latest inflation data. He added: “The strength of hotel price growth is suggestive of a so-called Taylor Swift effect on prices, but policymakers will almost certainly look through this kind of dynamic.

The pound was up about 0.2% against the US dollar on Wednesday morning, at 1.3 dollars, hitting its highest level in a year. This suggests that the pound was strengthening on predictions that interest rates might remain unchanged in August.

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June’s official inflation data is the first to be released since the UK welcomed a new Government at the start of this month.

Chief Secretary to the Treasury Darren Jones said: “It is welcome that inflation is at target, but we know that for families across Britain prices remain high. We face the legacy of 14 years of chaos and economic irresponsibility. That is why this Government is taking the tough decisions now to fix the foundations so we can rebuild Britain and make every part of Britain better off.”