Britain’s inflation rate remained stable in June after returning to the Bank of England’s target the previous month, official data showed on Wednesday, defying expectations of another minor downturn.
The Consumer Prices Index remained constant at 2.0 percent in June from the same level in May, according to the Office for National Statistics, despite market expectations of 1.9 percent.
“Hotel prices rose strongly, while second-hand car costs fell but by less than this time last year,” said ONS chief executive Grant Fitzner.
“However, these were offset by falling clothing prices, with widespread sales driving down their cost.
“Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.”
Analysts said the data could cause the Bank of England to sit tight for a while longer before starting to cut interest rates.
“The chances of an interest rate cut in August have diminished a bit more,” said Paul Dales, chief UK economist at research consultancy Capital Economics.
Last month, the BoE kept its key interest rate at a 16-year high of 5.25 percent, despite slowing inflation in May.
Britain’s newly elected Labour government welcomed news that inflation remained at the BoE’s target level.
“It is welcome that inflation is at target,” said Darren Jones, Chief Secretary to the Treasury, in a statement.
“But we know that for families across Britain prices remain high… (which) is why this government is taking the tough decisions now to fix the foundations” of the UK economy, he said.
Labour, lead by new Prime Minister Keir Starmer, has promised urgent action to boost the economy following the centre-left party’s massive general election victory, which ended 14 years of Conservative dominance.
When the UK parliament reopens after the July 4 election, King Charles III will give out Labour’s first government programme in a decade and a half.
Rising interest rates have exacerbated the UK cost-of-living constraint by increasing borrowing repayments, reducing discretionary incomes and stifling economic growth.
The Bank of England began raising interest rates in late 2021 to combat inflation, which soared after countries emerged from Covid lockdowns and escalated following Russia’s invasion of Ukraine.