Britain’s inflation rate remained steady in June, holding at 2.0 percent, the same level as in May, according to official data from the Office for National Statistics (ONS) released on Wednesday.
This result defied market expectations, which had predicted a slight decrease to 1.9 percent.
ONS chief executive Grant Fitzner explained that while hotel prices rose significantly and second-hand car costs fell less than they did the previous year, these increases were balanced out by falling clothing prices driven by widespread sales. Additionally, although the costs of raw materials and goods leaving factories decreased on a monthly basis, factory gate prices remained higher than they were a year ago.
Analysts suggest that this data could prompt the Bank of England (BoE) to delay any interest rate cuts. Paul Dales, chief UK economist at Capital Economics, remarked that the likelihood of an interest rate cut in August has decreased. Despite a slowdown in inflation in May, the BoE maintained its key interest rate at a 16-year high of 5.25 percent last month.
The newly elected Labour government welcomed the news that inflation remained at the BoE’s target level. Chief Secretary to the Treasury Darren Jones acknowledged the positive aspect of the steady inflation rate but noted that prices remain high for families across Britain. He emphasized that the government is making tough decisions to stabilize the UK economy.
Labour, under the leadership of new Prime Minister Keir Starmer, has committed to taking immediate action to stimulate economic growth following their landslide victory in the recent general election, which ended 14 years of Conservative rule.
On Wednesday, King Charles III is set to present Labour’s first governmental programme in a decade and a half during the formal reopening of the UK parliament, following the election on July 4.
Elevated interest rates have exacerbated the UK’s cost-of-living squeeze by increasing borrowing repayments, which reduces disposable incomes and dampens economic activity. The BoE began raising rates in late 2021 to combat rising inflation, which was initially driven by the post-Covid economic rebound and further accelerated by the impact of Russia’s invasion of Ukraine, a key oil and gas producer.