Please see the below article from Evelyn Investment Partners detailing their thoughts on this morning’s UK inflation announcement for June. Received this morning 17/07/2024.
What Happened?
UK June annual headline CPI inflation came in at 2.0% (consensus: 1.9%), versus 2.0% in May. In monthly terms, CPI was 0.1% (consensus: 0.1%), compared to 0.3% in May.
Core CPI inflation (ex-energy, food, alcohol and tobacco) came in at 3.5% (consensus: 3.5%) vs 3.5% in May. In monthly terms, Core CPI was 0.2% (consensus: 0.1%), compared to 0.5% in May.
What does it mean?
Despite headline inflation remaining in line with the Bank of England’s (BoE) inflation target for a second consecutive month, June’s inflation data came in very slightly warmer than forecasters had been expected.
Within today’s data, the category for clothing and footwear was responsible for nearly half of this month’s deceleration in the annual rate, with prices falling by 1.2% for the month of June, decelerating the annual rate to just 1.6%. Similarly, the basket for food and non-alcoholic beverages continued to ease, decelerating to 1.5% on an annual basis. This has helped drive the overall basket for goods firmly into deflationary territory with prices in this segment contracting by 1.4% over the last 12 months.
Meanwhile it’s the services sectors of the economy which are still running hot, with an annual inflation rate of 5.7%. within this, restaurants/hotels posted the strongest monthly print, with prices rising 0.9% compared to the month prior. As has been seen in previous locations during her tour, there is speculation that Taylor Swift’s ‘Eras tour’ that gripped the UK during June could be responsible for driving up hotel prices during the month.
However, looking forward:
Ofgem has signalled a further £122 reduction in the energy price cap effective from July 1, this 7% reduction should help to further cool household pricing pressures later this summer and further cement headline inflation at a rate within the BoE’s target.
Furthermore, the slowing trend in core CPI inflation remains broadly intact. Lead indicators, such as producer price inflation is also heading south. Moreover, cost-push led inflation from wages that feed into the service sector is also decelerating. In addition to weakening employment data, annual private sector wage growth slowed to 5.8% in April, down from a peak of 8.2% in June 2023.
Bottom Line
Even as headline inflation remains within target for its second consecutive month, the continued strength in services inflation will likely remain a cause for concern for committee members at the BoE, heading into their August meeting. However, it remains to be seen if this will be alarming enough to delay their first rate cut later into the year. Currently markets are only pricing in a 35% chance of a cut in August, while prior to this inflation print that number stood at around 50%.
Please continue to check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.
Alex Clare
17/07/2024