Inflation in the UK remained at 2% in the year to June despite a rise in hotel prices, new figures show. Although hotels, restaurants and hairdressers increased prices, these rises were offset by sharp falls in clothing and shoes as retailers offered widespread sales to shoppers. The level of inflation means that the cost of living in the UK is rising, but at a rate that the central bank is comfortable with following almost three years of above-target inflation. Policymakers at the Bank of England may still be concerned about areas such as services, where price increases are persistent.
The Bank of England base rate, which defines mortgage rates and other borrowing costs, is at a 16-year-high of 5.25% after being increased to tackle inflation. The Monetary Policy Committee, which decides on the rate, has held interest rates at this level for several months, but some economists predict a cut in interest rates following the next vote on 1 August. The underlying measures of inflation being watched by the bank did not change; core inflation, which strips out the impact of volatile items such as energy prices, remained at 3.5%.
Chief Secretary to the Treasury Darren Jones stated that, despite the steady level of inflation, families’ budgets across the country are still being squeezed. He claimed that long-term economic irresponsibility had created significant challenges. The International Monetary Fund included the UK among those countries who might need to keep interest rates “higher for even longer” to tackle inflation. Although markets expected a rate cut on 1 August, the recent inflation figures and other stronger figures for the economy could compel Bank of England policymakers to reconsider their stance.
Although hotel prices rose in the year to June, there was a reduction in the cost of used cars. These figures come at a time when questions are being raised about when interest rates should be cut. While inflation is being managed, there are concerns policymakers may need to take action to prevent further economic struggles
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