UK inflation at 2% target for second successive month

But resilient services sector inflation could cause unease among policymakers.

17 July 2024

Headline inflation in the UK flatlined for the month of June, with consumer prices up 2.0% on the previous year, just as they had been for the month of May. Expectations were for a softer print below the Bank of England's (BoE) official 2.0% target for the first time since 2021, which would have signified at last 'proper' post-pandemic inflation normalisation, but that moment appears to have been delayed. In fact, 'core' inflation (excluding food and energy) came in worse than the expected 3%, at 3.5% on the previous year, driven by high services inflation. Somewhat incredibly, summer rock concerts in the UK in June - especially Taylor Swift's - are believed to have kept this measure of inflation stubbornly high, with hotels and other service prices leading the charge.

Meanwhile wage growth comes out on Thursday and will likely further cloud the picture. It is expected to remain at nearly 6%, which is hardly consistent with an easing inflation narrative. Overall then, this latest inflation print is unlikely to be as helpful for the BoE as many would have expected. Headline inflation is at, but not below, target and clearly vulnerable to a pop above target again in the coming months. For both the US Federal Reserve and BoE now, the inflation course is just not the clear signal to action that it once was. The credibility-draining refusal to recognise inflation back in 2021/22 has no less than ended the era of central banks speaking with certainty on the future trajectory of inflation and rates, with this month’s print demonstrating neatly why it is best not to be a hostage to fortune. With sterling stronger against the US dollar and FTSE 100 futures flat, this could leave the heavy lifting of kickstarting sluggish UK growth firmly back with the government and fiscal policy, where wriggle room remains extremely tight.