Bank of England Maintains Inflation at 2 Percent Target in June

July 17, 2024 TruthUSA

Economists believe that British families have yet to feel the benefit of lower inflation due to the high costs of food and energy.

Inflation remained stable in June, in line with the Bank of England’s 2 percent target for the second consecutive month, according to official data.

The steady price growth comes after a period of high inflation rates that affected households due to increasing food and energy prices. Currently, inflation remains significantly below its peak of 11.1 percent in October 2022.

The Office for National Statistics (ONS) indicated that while headline inflation remained constant in June, specific sectors experienced fluctuations.

Prices for restaurants and hotels rose by 0.9 percent between May and June. The ONS noted that hotels were the main drivers of the increase in the annual rate, with a monthly rise of 8.8 percent.

Although hotel prices rose significantly, the cost of second-hand cars decreased compared to the previous year.

“However, these increases were offset by decreasing clothing prices as widespread sales lowered their costs,” stated Grant Fitzner, chief economist at the ONS.

Clothing prices saw a monthly decline of 1.2 percent, compared to a 0.2 percent increase the previous year. The annual rate was at 1.6 percent, down from 3.0 percent in the year to May.

Mr. Fitzner also noted a monthly decrease in the cost of raw materials and finished goods leaving factories, although factory gate prices remained higher than the previous year.

Caution

Despite headline inflation meeting the BoE target, core inflation, excluding food and energy prices, stood at 3.5 percent.

Inflation in the services sector, closely monitored by the BoE, remained at 5.7 percent. Service price hikes are primarily driven by wages, which recorded significant growth results in June. This wage impact on services inflation could keep it elevated in the short term, adding upward pressure to headline inflation.

According to the National Institute of Economic and Social Research (NIESR), persistently high core and services inflation could pose challenges for the BoE, prompting them to “proceed with caution” with interest rate decisions.

Last month, the bank maintained the interest rate at 5.25 percent and indicated that monetary policy will remain restrictive until inflation “sustainably” reaches the 2 percent target.

NIESR anticipates further inflation increases throughout the year due to base effects, before a return towards the target in 2025. Forecasts of fluctuating inflation could lead the bank’s Monetary Policy Committee (MPC) to hold back on interest rate cuts at the upcoming Aug. 1 meeting.

According to the chief economist at the Confederation of British Industry, Martin Sartorius, the MPC is likely to proceed cautiously as they evaluate the impact of the first rate cut in four years.

He also highlighted that many households have yet to experience the benefits of decreased inflation due to expensive food and energy.

Economic Inheritance

Compared to other European countries, UK inflation was lower than France’s (2.5 percent) and Germany’s (2.5 percent) in the 12 months leading up to June.

Shadow leader of the House of Commons, Chris Philp, stated that with the UK’s growth topping the G7 list this year, the new government has a strong economic foundation and no reason for tax hikes.

The June inflation figures mark the first release since the Labour Party took office earlier this month.

Chief Secretary to the Treasury Darren Jones welcomed the news of inflation reaching the BoE target but acknowledged that prices remain high nationwide.

“We are dealing with the aftermath of 14 years of turmoil and fiscal irresponsibility. That’s why this government is making tough decisions now to repair the groundwork so we can rebuild Britain and improve every part of the country,” said Mr. Jones.

PA Media contributed to this report.

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