Rate of inflation stays at 2% ahead of crunch interest rate decision

The rate of inflation remained steady at 2% in the year to June, according to new figures from the Office for National Statistics (ONS) released this morning (July 17).

The news comes ahead of a crunch decision from the Bank of England, which will be weighing up cut to the base interest rate from 5.25% to 5% at the start of next month.

This morning’s 2% figure is slightly higher than analyst predictions, many of whom had forecast inflation dropping to 1.9%.

The largest upward contribution to the monthly change came from restaurants and hotels, where prices of hotels rose more than a year ago; the largest downward contribution came from clothing and footwear, with prices of garments falling this year having risen a year ago.

Grant Fitzner, chief economist at the ONS, said: “The inflation rate was unchanged in June. hotel prices rose strongly while second-hand car costs fell but by less than this time last year. However, these were offset by falling clothing prices, with widespread sales driving down their cost.

“Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.”

Joe Nellis, MHA’s economic adviser, added: “With inflation holding steady but not falling below 2%, the odds on an interest rate cut on 1 August are 50:50.

 “The Bank of England is still concerned that inflation is not yet tamed with the figures for core inflation and service sector inflation both still too high.

“Wage inflation at an annual pace of increase at 6% is helping to alleviate the cost of living crisis but it does create a real dilemma for the BoE when they can safely cut interest rates and has made a reduction on 1 August less likely than it appeared a few weeks ago.

 “It will be a tough call given the growing political and social pressure to take action, but the Bank may yet hold until the Autumn.”