UK inflation holds at 2.0 percent in June

UK inflation held steady in June, remaining at the Bank of England’s target rate of 2%, according to the latest official figures.

Discounts offered during summer sales on clothing helped offset significant price hikes in hotels.

Overall, inflation held steady at 2% for the year ending in June, unchanged from May.

This indicates a continued increase in the cost of living, albeit at a rate deemed acceptable by the central bank, following a prolonged period of inflation above the target, which has strained household finances.

Grant Fitzner, chief economist at the Office for National Statistics (ONS), highlighted a notable increase in discounting across various sectors.

Specifically, clothing and footwear costs declined last month, while the inflation rate for food and drink showed a marked decrease from recent highs.

The data also revealed a slight decrease in second-hand car prices compared to the same period last year. Conversely, prices in restaurants and hotels saw increases, with hotel prices rising sharply by 8.8% from the previous month, and restaurant and cafe prices up by 0.3% on a monthly basis.

Furthermore, costs for package holidays, as well as tickets for cinemas, theatres, and concerts, showed upward trends.

Persistent price increases in services, which encompass a wide range from dining out to hairdressing, continue to pose considerations for Bank of England policymakers regarding potential interest rate adjustments.

Darren Jones, the newly appointed chief secretary to the Treasury, emphasized that households across the UK are still feeling financial pressure despite the stable inflation figures.

“We face the legacy of 14 years of chaos and economic irresponsibility. That is why this government is taking the tough decisions now to fix the foundations so we can rebuild Britain and make every part of Britain better off.”

The Bank’s base rate – which is used to help set mortgage rates and other borrowing costs – currently stands at a 16-year-high of 5.25% after it was increased in a bid to tackle soaring inflation.

Its Monetary Policy Committee (MPC), which votes to set the rate, has held interest rates at this level for several months but some economists have predicted they will cut the rate at the next vote on 1 August.

Leanne Morgan and her husband Gareth bought their house in Greenwich, south-east London, in 2016 when interest rates were much lower.

Their five-year fixed mortgage deal came to an end this month and their new rate stands at just over 4% – pushing their mortgage payments up by £5,200 a year.

Mrs Morgan said the higher mortgage payments had restricted the things they were able to do with their three older children.

“We can’t have family holidays, we’ve not been able to do so much with the children….it affects where I shop for food, I’m always looking for discounts. We sit together, we look at what our costs are, where we can cut back and look at a budget.”

She said was optimistic, however, that the UK economy was over the worst and that better times were ahead.

“I think sometimes the doom and gloom that we talk about can actually make us feel very negative….It you can feel hopeless,” she said.

“But if we have a good conversation about what is possible, and working with what we’ve got, we can have a better conversation about it,” she added.

The underlying inflation indicators closely monitored by the Bank of England showed no change in the latest data.

For instance, inflation in the services sector remained steady at 5.7%, while core inflation, which excludes volatile items such as energy prices, held firm at 3.5%.

Coupled with other positive economic indicators in recent days, these figures might give pause for thought to members of the Bank of England committee tasked with deciding on interest rates next month.

On Tuesday, the International Monetary Fund included the UK among countries that might need to maintain higher interest rates “for an extended period” to effectively combat inflation.

Market expectations had been leaning towards interest rate cuts starting on August 1, which would help reduce fixed mortgage rates.

However, the latest data suggests that the decision will be finely balanced.

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