British inflation held steady at 2.0% last month, defying forecasts for a slight fall. Economists polled by Reuters had expected a drop to 1.9% in the 12 months to June. Inflation for services remained strong at 5.7%, unchanged from May.
Sterling rose against the dollar immediately after the data was published. The Bank of England (BoE) has expressed concern about services inflation, driven by wage growth in a tight labor market. Upcoming data is expected to show wages growing by almost 6%, double the rate compatible with the BoE’s inflation target of 2%.
The BoE is set to announce its next decision on interest rates on August 1, with investors seeing a 50% chance of a rate cut. This would benefit new Prime Minister Keir Starmer, who aims to accelerate the economy. However, BoE’s Chief Economist Huw Pill emphasized the focus on strong price pressures, making the timing of the first rate cut uncertain.
Core inflation, excluding food and energy prices, held at 3.5%, matching forecasts. The BoE had anticipated headline inflation at 2.0% and services inflation at 5.1% for June, with expectations for headline inflation to rise above its target later this year and through 2025.