There has been no change to the rate of inflation, which remained at 2% in June, according to official figures released by the Office for National Statistics. This rate of inflation is the target set by the Bank of England.
The data showed that prices in June rose at the same rate as in May, with hotel prices experiencing a strong increase while second-hand car costs fell at a slower pace. The decrease in clothing sales and raw material costs also contributed to the unchanged rate of inflation.
However, this figure is higher than economists’ expectations, as they had forecast a slight fall to 1.9%.
The absence of a decrease in inflation may come as unwelcome news to the Bank of England’s interest-rate setters, who have been keeping borrowing rates high in an effort to bring inflation down to the target rate of 2%. A cut in interest rates would benefit mortgage holders and those with other forms of debt, such as loans or credit card bills. However, with the latest data, it is now expected that there will be no rate cut when Bank officials next meet in August to consider rates.
Before the inflation announcement, market expectations for a rate cut were at 53%, according to data provided by the London Stock Exchange Group (LSEG). However, these odds rose to 65% after the release of the data.
Key figures that may have influenced the decision to keep interest rates unchanged include two other measures of inflation – services and core. The cost of services remained at 5.7%, the same as the previous month, while core inflation, which excludes fuel and food in measuring price rises, stayed at 3.5%.
The pound saw a boost following the release of the inflation data, reaching a year-high against the dollar and nearly a two-year high against the euro. This means that one pound can now buy more euros and dollars than at any point in the last two years.
On Wednesday, the pound rose against the dollar, with one pound equaling $1.30 for the first time since July 18. Against the euro, the pound now buys €1.19, the first time since early August 2020 – almost two years ago.
This increase in the value of the pound is good news for British travelers heading to the US and the 20 countries that use the euro, as their pound will now go further than it has in the past 12 and 23 months, respectively.
Additionally, consumers may also benefit from the positive exchange rate if it remains stable. The cost of imported goods purchased with dollars and euros could potentially decrease, leading to lower prices for shoppers.
Commenting on the inflation data, Darren Jones, chief secretary to the Treasury, stated, “It is welcome that inflation is at target, but we know that for families across Britain, prices remain high.” He added that the government is taking tough decisions now in order to “fix the foundations” and rebuild the country, making every part of Britain better off.
