Is a Bank of England base rate cut on the horizon?
UK inflation stayed at 2% in June, hitting the government’s target rate for a second consecutive month.
Consumer price inflation (CPI) data published by the Office for National Statistics (ONS) on Wednesday showed that, on a monthly basis, CPI rose by 0.1% in June 2024, the same rate as in June 2023.
ONS said the largest upward contribution to the monthly change in the CPI annual rate came from restaurants and hotels, where prices of hotels rose more than a year ago; while the largest downward contribution came from clothing and footwear, with prices of garments falling this year having risen a year ago.
“The inflation rate was unchanged in June,” said Grant Fitzner, ONS chief economist. “Hotel prices rose strongly while second-hand car costs fell but by less than this time last year. 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.”
Consumer Prices Index (CPI) grew 2.0% in the year to June 2024, unchanged from the previous month.
— Office for National Statistics (ONS) (@ONS) July 17, 2024
Read the release ➡️ https://t.co/xCG9DNmbkX pic.twitter.com/xVbi2oFTel
“More than two years of bitter interest rate medicine have worked – Britain’s inflationary disease has been cured,” commented Stuart Cheetham, chief executive of lender MPowered Mortgages. “Yes, some worrying symptoms remain – today’s data is far from a completely clean bill of health. But the progress is real and the fact the headline rate of CPI has held steady at the Bank of England’s 2% target for two months in a row suggests the worst is past.
“While economists will argue about whether it’s too soon to declare victory over inflation, the case for holding interest rates so high is eroding fast – and the bank is likely to reflect this at its next interest rate decision in a fortnight’s time.”
For Ben Thompson, deputy chief executive of Mortgage Advice Bureau, the latest CPI reading opens the door for an August rate cut – the first since 2020.
“This is good news for buyers, but it’s important to remember that rates won’t fall off a cliff come August,” he stressed.
Cheetham added that the first cut in the bank’s base rate may be small in percentage terms, but it will be “huge in symbolism.”
“The speed and scale of any monetary loosening is still far from clear, but a gradual return to more normal interest rates will ease mortgage borrowers’ pain and inject much-needed vigour into the sluggish property market,” he said.
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