UK Inflation Pressures Stay Hot, Reducing Chance of August Rate Cut

• British inflation defied forecasts for a slight fall and held at 2% in June while strong underlying price pressures prompted investors to reduce bets that the Bank of England (BoE) will cut interest rates in two weeks' time for the first time since 2020.
• Increases in hotel prices - in a month when U.S. pop star Taylor Swift and other performers toured the UK - were partly to blame for the higher-than-expected inflation number, underscoring the BoE's concern about service prices.
• Economists polled by Reuters had mostly expected headline consumer price inflation would ease to 1.9% in the 12 months to June, extending its drop from a peak of 11.1% in October 2022.
• Inflation for services was 5.7%, the Office for National Statistics (ONS) said, unchanged from May. The Reuters poll had pointed to a slightly weaker 5.6% increase.
• The BoE took comfort from May's fall in consumer price inflation to its 2% target for the first time in nearly three years. But it has expressed concern about the strength of services inflation, which largely reflects pressure from wage growth in a labour market short of candidates to fill jobs.
• Core inflation - excluding volatile food and energy prices - held at 3.5% in the 12 months to June, the ONS said, matching the median forecast in the Reuters poll. The BoE had expected headline inflation of 2.0% in June and services inflation of 5.1%, according to forecasts it published two months ago. The BoE also expected headline inflation to rise back above its target later this year and through 2025.

(Source: Reuters)