UK inflation remained at two per cent in June, defying forecasts of a slight decline. Underlying price pressures persisted, leaving uncertainty over the timing of the Bank of England’s first interest rate cut since 2020.
Economists surveyed by Reuters had mostly expected consumer price inflation to fall to 1.9 percent in the 12 months to June, extending its decline from a peak of 11.1 percent in October 2022.
Inflation in the services sector was significantly higher at 5.7 percent and remained unchanged from May, the Office for National Statistics said.
The Reuters poll had indicated a slightly weaker increase of 5.6 percent.
The BoE, which targets consumer price inflation of two percent, has expressed concern about the strength of services inflation, which largely reflects pressures from wage growth in a labor market that is short of applicants for vacancies.
Data released on Thursday are expected to show wage growth slightly less than in data released a month ago, but still at nearly 6 percent, roughly twice the rate consistent with maintaining inflation at 2 percent.
The BoE will announce its next interest rate decision on August 1, and investors believe the chance of a first cut in borrowing costs since 2020 is around 50 percent.
A rate cut would be a first impulse for the new Prime Minister Keir Starmer and his Finance Minister Rachel Reeves. After their overwhelming victory in the elections two weeks ago, they want to stimulate the sluggishly growing British economy again.
But last week, BoE chief economist Huw Pill said he was focused on continued strong price pressures and said the timing of the first rate cut was an open question.
Core inflation – excluding volatile food and energy prices – was 3.5 percent in the period up to June.
The BoE had expected headline inflation of two percent and services inflation of 5.1 percent for June.
The BoE also expected headline inflation to rise above its target again later in 2024 and during 2025.