As the rate remained at the Bank of England’s target for the second consecutive month, it’s led to speculation as to whether the Monetary Policy Committee will agree to cut the base rate in August.
With a month to go until households discover whether the rate will finally dip from 5.25%, the inflation update does not provide an immediate giveaway as to what will happen, according to finance experts.
The inflation rate holding was despite the prices for hotels and restaurants shooting up by 0.9% in the month after May, while the annual rate rose by 0.5% to 6.3% for the year leading to June 2024.
Meanwhile, the effect of the high hotel costs was softened by the drop in the price of food and drink in cafes and restaurants. Those levels saw a monthly rise of 0.3%, lower than the 0.5% the year before.
As dining out cooled in price, so did clothing and footwear on a yearly basis. Prices rose by 1.6% in that sector in the 12 months to June 2024, compared to a 3% surge in the year to May.
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Month-to-month, prices for clothing and footwear dropped by 1.2%, compared to a 0.2% increase a year ago, according to the Office for National Statistics (ONS).
As well as restaurants and hotels, the Government data companies noted the largest upward effects were on transport, housing and household services.
Elsewhere, core inflation that doesn’t include the fluctuating energy, food, alcohol and tobacco sectors rose by 3.5% in the 12 months to June 2024, which is the same rate as in May.
Despite the annual inflation rate holding at the Bank of England’s 2% target again, a true difference-maker to households’ finances won’t happen until the Monetary Policy Committee (MPC) agrees on a base rate reduction, according to Myron Jobson
‘Inflation reading came in slightly higher than expected’
Jobson, the senior personal finance analyst at Interactive Investor, says that the decision to be made in August “hangs in the balance following the latest inflation reading, which came in slightly higher than expected”.
Jobson said: “It was more of the same for key inflation data in June, with headline inflation, core CPI, and CPI services remaining unchanged from May. It is not the best inflation report for Bank of England policymakers, who are watching for further evidence that it has brought rampant inflation under control.
“Bank of England officials look at the full economic picture when setting interest rates. Metrics relating to labour market tightness, pay growth, and services price inflation are not quite where the Bank of England wants them to be to lessen the threat of entrenched inflation. Cutting interest rates too soon risks undermining the progress on inflation.”
Jobson added: “Attention will now turn to labour market data tomorrow as the bank mulls over whether to begin cutting interest rates at the start of August. Lower interest rates would offer some reprieve to mortgage rates and lower the cost of borrowing more broadly, but the reverse is true when it comes to savings rates.”
‘Good news is pressure is easing for consumers’
Following grocery price inflation easing to 1.6% – its lowest level since September 2021 – Richard Carter, head of fixed interest research at Quilter Cheviot, believes “everyone on the front benches will be breathing a sigh of relief”.
Carter said: “The good news is that pressures are easing, especially for consumers. Grocery inflation is now at its lowest level in almost three years, and the economic picture is improving.
“We have also had events come and go last month, specifically Taylor Swift’s UK leg of her world tour, that will have added some volatility to the overall inflation figure for June.”
He added: “With these stripped out of future figures, it is hoped that even if we do get another uptick in inflation in the coming months, the BoE can shake it off quickly and prevent any reassessment of the optimal ceiling for interest rates, and any chance of rates having to be put back up.
“What happens with core and services inflation will be crucial to watch and will give an indication of just how quickly the Bank of England can act when it comes to normalising monetary policy.”
