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UK inflation remained steady at the Bank of England's 2% target in June, official national statistics data showed on Wednesday.
The headline reading was higher than analysts' expectations of 1.9%, according to economists polled by Reuters, and was in line with the previous reading of 2% in May.
The pound rose slightly shortly after the statement, trading at $1.2977 by 7:21 a.m. London time.
Inflation in the services sector – which the Bank of England watches closely, given its dominance within the UK economy and its reflection of rising prices generated by domestic activity – remained at 5.7% in June.
Core inflation, excluding energy, food, alcohol and tobacco, stood at 3.5%, also on par with 3.5% in May.
The Office for National Statistics said rising restaurant and hotel prices were the biggest factor in the upward pressure, while clothing and footwear costs recorded the biggest falls.
Consumers increase their spending on entertainment activities during the summer months, including cultural experiences and concerts as major artists such as Taylor Swift, Bruce Springsteen, Pink and Sting tour the country.
Bank of England rate cut is the focus
Investors had been looking for a possible rate cut in August as key inflation showed signs of a continued slowdown. Market expectations for such a cut have waned after the latest data release.
Stubborn service sector inflation could prompt Bank of England policymakers to be cautious ahead of their meeting next month, said Jane Foley, head of foreign exchange strategy at Rabobank.
“It's not a done deal yet for August,” she told CNBC's “Squawk Box Europe” on Wednesday.
“I think a lot of the policy committee members, a lot of the economists, are going to look at service sector inflation and be a little bit concerned,” she added.
Jonathan Haskel, a member of the Bank of England's Monetary Policy Committee, said last week that he believed interest rates should remain on hold due to ongoing pressures in the labour market.
The timing of a rate cut remains an “open question” due to the “uncomfortable strength” in wage growth, the Bank of England's chief economist Hugh Bell added later in the week.
The Bank of England's main interest rate has remained at a 16-year high of 5.25% since August 2023, when inflation was 7.9%.
Wednesday's reading was the first since the UK's general election on July 4, but it does not reflect a change in government. New UK Chancellor of the Exchequer Darren Jones said in a statement that prices remained too high.
“We are facing the legacy of 14 years of chaos and economic irresponsibility,” Johnson said on Wednesday. “That is why this government is taking the difficult decisions now to fix the foundations so that we can rebuild Britain and make every part of Britain better off.”
