Inflation in the UK held steady at the Bank of England’s target rate of 2 per cent in the year to June, official figures showed Wednesday, in a development that could be enough for policymakers to cut borrowing costs next month.

The Office for National Statistics said the largest upward contribution to the annualized inflation rate came from restaurants and hotels, with some economists attributing the increases to Taylor Swift’s tour of the U.K. The biggest downward contribution came from clothing and footwear, with widespread sales during the month.

The flat reading compared to June a year ago was a tad higher than expected. Most economists had anticipated a modest decline to 1.9 per cent.

The last time inflation was at 2 per cent was in July 2021 before prices started to shoot up, first as a result of supply chain issues during the coronavirus pandemic and then because of Russia’s invasion of Ukraine, which pushed up energy costs.

Financial markets think it’s going to be a close call as to whether the Bank of England will reduce its main interest rate from 5.25 per cent on Aug. 1.

Some policymakers are still concerned over the scale of price rises in the crucial services sector and the pace of wage increases, which raise the risks of an inflation rebound if interest rates are cut too soon.

Higher interest rates which cool the economy by making it more expensive to borrow have helped ease inflation, but they’ve also weighed on the British economy, which has barely grown since the pandemic rebound.

Prime Minister Keir Starmer has stressed that upping the U.K.’s economic growth will be the driving mission of his Labour government. Later Wednesday, his government will announce its plans for the coming year. Starmer said the measures announced in the King’s Speech to Parliament would take the brakes off Britain and create wealth for people up and down the country by spurring economic growth.

First Published: Jul 17 2024 | 1:17 PM IST