Britain’s inflation rate remained steady in June after returning to the Bank of England’s target the previous month, official data showed Wednesday, defying expectations for another modest slowdown.
The Consumer Prices Index (CPI) was unchanged at 2.0 percent in June from the same level in May, the Office for National Statistics (ONS) said in a statement, compared with market forecasts of 1.9 percent. ONS chief executive Grant Fitzner explained, “Hotel prices rose strongly, while second-hand car costs fell but by less than this time last year. However, these were offset by falling clothing prices, with widespread sales driving down their cost. Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.”
Analysts noted that the data could influence the Bank of England’s decision on interest rates. Paul Dales, chief UK economist at research consultancy Capital Economics, stated, “The chances of an interest rate cut in August have diminished a bit more.” Last month, the BoE maintained its key interest rate at a 16-year high of 5.25 percent, despite slowing inflation in May.
Britain’s newly elected Labour government welcomed the news that inflation remained at the BoE’s target level. Darren Jones, Chief Secretary to the Treasury, remarked, “It is welcome that inflation is at target. But we know that for families across Britain prices remain high… (which) is why this government is taking the tough decisions now to fix the foundations of the UK economy.” Labour, led by new Prime Minister Keir Starmer, has pledged immediate action to grow the economy following their landslide general election victory, ending 14 years of Conservative rule.
Later on Wednesday, King Charles III will outline Labour’s first programme for government in a decade and a half when the UK parliament formally reopens following the July 4 election.
Elevated interest rates have exacerbated the UK cost-of-living crisis by increasing borrowing repayments, thereby reducing disposable incomes and limiting economic activity. The BoE began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated following Russia’s invasion of Ukraine, a key oil and gas producer.
