‘Taylor Swift effect’ stops inflation dropping below 2% as calls grow for rate cut
Prices are still rising but at a rate that the central bank is comfortable with, after nearly three years of above-target inflation
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Your support makes all the difference.The popularity of Taylor Swift’s recent tour of the UK has had a butterfly effect on the UK economy, helping push up the price of hotel stays and in turn keeping inflation at 2 per cent.
This is the level of price increases the Bank of England targets and it has been at this rate for two months.
Borrowers were hoping for lower inflation as that means more of a chance that the Bank will cut interest rates, bringing mortgage costs down.
Calls are growing to bring down the cost of borrowing to help household finances and boost business investment. The next decision on interest rates will be made on August 1.
The rate of Consumer Prices Index inflation remained unchanged at 2 per cent in June, the Office for National Statistics (ONS) said.
It means that prices are still rising but at a rate that the central bank is comfortable with, after nearly three years of above-target inflation fuelling the cost-of-living crisis.
George Dibb, associate director for economic policy at the IPPR think tank, said rates should still be cut.
“Today’s data confirms that inflation is well on its way towards normalisation. Some inflation drivers, such as core inflation, are still elevated, but the Bank of England’s policy stance remains too tight. Interest rates have been too high for too long and need to come down to not hamper growth,” he said.
“The new government wants to boost the economy and to prevent inflationary pressures. Only investments in the clean energy transition can shield us from future inflation shocks in international oil and gas markets. Additionally, a record number of people have left the labour force, often due to illness, harming our economic potential. Addressing NHS failures will be critical to solving our dire labour market situation.”
The latest data showed that prices in restaurants and hotels rose more than a year ago, putting upward pressure on the headline inflation rate.
Luke Bartholomew, deputy chief economist for Abrdn, suggested that the “so-called Taylor Swift effect” could have helped drive higher prices during the month, and as fans spent more on overnight stays during the Eras tour.
But prices of clothing and footwear fell last month, which helped bring down the overall rate.
Services CPI inflation – which looks only at services-related categories like hospitality and culture and is watched closely by the Bank’s interest rate-setters – was unchanged at 5.7% in June.
This could present a problem for the Bank after some economists had been expecting the rate to slow last month.
ONS chief executive Grant Fitzner said: “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.”
Darren Jones, chief secretary to the Treasury, said: “It is welcome that inflation is at target, but we know that for families across Britain prices remain high.
“We face the legacy of 14 years of chaos and economic irresponsibility.
“That is why this Government is taking the tough decisions now to fix the foundations so we can rebuild Britain and make every part of Britain better off.”