Monday, December 23, 2024

UK inflation holds steady at Bank of England target

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UK inflation held steady at the Bank of England’s target of 2% in June, with prices rising at their slowest rate in nearly three years.

Prices rose at 2% in the year to June, unchanged from May and partly driven by hotel prices going up, according to the latest official figures.

But price increases in areas such as services, which include everything from restaurants to hairdressers, remain persistent.

That could raise questions for Bank of England policy-makers over when they may be planning to cut interest rates.

The Bank’s base rate – which is used to help set mortgage rates and other borrowing costs – currently stands at a 16-year-high of 5.25% after it was increased in a bid to tackle soaring inflation.

Its Monetary Policy Committee (MPC) which votes to set the rate, has held interest rates at this level for several months but some economists have predicted they will cut the rate at the next vote on 1 August.

The latest figures from the Office for National Statistics (ONS) on Wednesday showed hotel prices rose strongly, while second-hand car costs fell but by less than the same time last year.

And these changes were offset by falling clothes prices with retailers offering widespread sales to shoppers.

The underlying measures of inflation being watched closely by the Bank of England also did not change.

Inflation in the services sector, for example, remained at 5.7%, while core inflation, which strips out the effects of more volatile items like energy prices, held at 3.5%.

Alongside some other stronger figures for the economy in recent days, it may give some pause for thought for those members of the Bank of England committee deciding interest rates next month.

On Tuesday, the International Monetary Fund listed the UK among the countries who could need to keep interest rates “higher for even longer” than originally anticipated to squeeze inflation out of the system.

Markets have been anticipating that rate cuts will start on 1 August, helping fixed mortgage rates fall.

The latest numbers for inflation suggest it will be a finely balanced decision.

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