UK inflation, May 2024

UK inflation held steady at the Bank of England’s 2% target in June, official data from National Statistics showed on Wednesday.

The headline reading beat analysts’ expectations by 1.9%, according to economists polled by Reuters, and was in line with the previous reading of 2% in May.

The British pound rose slightly shortly after the release, trading at $1.2977 at 7:21 a.m. London time.

Services inflation – which the BOE monitors closely because of its dominance in the UK economy and its reflection of domestically generated price increases – held at 5.7% in June.

Core inflation, excluding energy, food, alcohol and tobacco, was 3.5%, also similar to the 3.5% recorded in May.

Higher restaurant and hotel prices contributed most to the upward pressure, while clothing and footwear costs saw the biggest falls, the ONS said.

Consumers are increasing their spending on leisure activities during the summer months, including cultural experiences and concerts as high-profile artists such as Taylor Swift, Bruce Springsteen, Pink and Sting tour the country.

Investors have been on the lookout for a possible rate cut in August as headline inflation showed signs of a sustained slowdown. Market expectations for such a cut faded just after the latest data was released.

Jane Foley, head of currency strategy at Rabobank, said stubborn services inflation could prompt BOE policymakers to be cautious ahead of their meeting next month.

“It’s not really a done deal for August,” he told CNBC’s “Squawk Box Europe” on Wednesday.

“I think a lot of policy committee members and a lot of economists will be looking at service sector inflation and getting a little bit worried,” he added.

BOE Monetary Policy Committee member Jonathan Haskel said last week that he thought rates should remain unchanged due to continued pressures in the labor market.

BOE chief economist Huw Pill added later in the week that the timing of a rate cut remained an “open question” because of “uncomfortable strength” in wage growth.

The BOE’s main interest rate has remained at a 16-year high of 5.25% since August 2023, when inflation was 7.9%.

Wednesday’s reading is the first since the U.K. general election on July 4, but it does not reflect the change in government. The new U.K. chief secretary to the Treasury, Darren Jones, said in a statement that prices remain too high.

“We are facing the legacy of 14 years of chaos and economic irresponsibility. That is why this Government is taking tough decisions now to lay the foundations so we can rebuild Britain and make every part of Britain better,” he said on Wednesday.