UK’s CPI inflation holds steady at 2%
Reading time: 3 minutes
UK consumer price index (CPI) inflation held steady at 2% in June, slightly above expectations.
This was largely due to persistent services inflation, which offset falling energy prices. While inflation is unlikely to decline significantly further, the era of high inflation appears to be over, offering some respite to household budgets.
Kevin Brown, savings specialist at Scottish Friendly, said: “It is reassuring to see inflation staying reasonably steady, even as GDP surprises to the upside. This suggests the economy is moving onto a healthier footing, and enjoying a period of growth that we haven’t benefited from in some time.
“The big question now is what the Monetary Policy Committee does next. The expectation of a rate cut has looked increasingly remote as the economic situation has normalised. But it remains to be seen if this is what the MPC will opt for, or if it will continue to wait and see whether the economy continues its strong showing.
“Households with mortgages and other debts will take little comfort from this, but ongoing wage growth versus inflation suggests that the situation is getting better for many.
“Tomorrow’s wage and employment data will be instructive on where we stand. If the labour market starts to show signs of real weakness then this could be the nudge that brings the rate cut to fruition.”
Peter Arnold, EY UK Chief Economist, said: “Inflation is unlikely to fall much further now. The contribution from the food and services categories should decline gradually as firms pass on the gains from their lower energy bills.
“However, the drag from falling energy prices will start to fade from July, and this is likely to mean that headline inflation temporarily drifts up towards the end of this year.
“But the bigger picture is one where the inflation pressure of the past three years has dissipated, and the EY ITEM Club expects a period of relatively low and stable inflation to underpin steady improvements in household spending power.”
Mr Arnold continued: “The minutes of last month’s Monetary Policy Committee (MPC) meeting made it clear that the committee is split. The more hawkish members may see today’s data as evidence that their concerns about inflation persistence are well founded.
“The implications for the more dovish members are unclear. On the one hand, they indicated they were becoming less interested in backward-looking measures of inflation persistence and were adopting a more forward-looking approach. And that shift had occurred despite a string of overshoots for services inflation.
“But on the other hand, from a presentational point of view, they might feel that they need to wait for inflation to surprise on the downside before they move. A hawkish response from markets to today’s data might also encourage the MPC to wait.”
Share this article:
Subscribe to our newsletter to not miss articles like this one:
SUBSCRIBE
