The rate of inflation has remained at the Bank of England’s 2% target, according to the latest figures released by the Office for National Statistics (ONS).
This means that inflation rose at the same rate in the year to June as for the year to May. Whilst the cost of living is still increasing, it is now doing so in line with a rate that the Bank of England (BoE) deems manageable.
Why the rate of inflation has remained at 2%
Although 2% is the BoE’s target rate, experts had expected a slight drop this time to 1.9%. However, a sharp increase in hotel prices has been cited as the main reason for this not happening. Prices in restaurants and cafés have also increased. Second-hand car costs fell although this was at a lower rate than the previous year.
On the other hand, the costs of raw materials have fallen. So too have the costs of clothing and footwear, which have been attributed to retailers offering discounts. This has helped to offset the high hotel prices so that inflation has stayed at 2%. Inflation on food and drink has also dropped from 1.7% to 1.5%. This is the lowest it has been since October 2021.
When will interest rates be cut?
The next base rate review to be held by the Monetary Policy Committee (MPC) is on 1st August. Currently standing at 5.25%, it is hoped that the rate will see its first cut following the MPC vote.
However, economists had predicted that this latest inflation rate figure would drop to 1.9%. The fact that it has remained at 2% has caused some doubt as to whether or not interest rates will be cut on 1st August or whether the Bank of England will remain cautious and continue to hold the base rate at 5.25%. Other factors that may influence the MPC’s decision to hold the rate at 5.25% are core and services inflation, which have both remained the same.
So while it’s good news that the inflation rate is at the 2% target, the possibility that the first base rate cut may be delayed is disappointing news for mortgage payers and other borrowers.
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