Inflation remained at the Bank of England’s two per cent target for the second month in a row as markets consider whether interest rates will be cut in a matter of weeks.
Figures released this morning by the Office for National Statistics (ONS) showed that prices rose 2.0 per cent in the year to June, unchanged on last month and in line with economists’ forecasts.
Core inflation, which strips out volatile components such as food and energy, stayed at 3.5 per cent in June, which was also in line with City estimates.
June’s batch of inflation figures is the last before the Bank of England will announce its latest decision on interest rates in a couple of weeks time.
Before the figures were released, traders put the chance of a rate cut in August at a little less than half, with rate markets set to open at 7:30.
Bank officials are concerned by signs that domestic inflationary pressures are not yet fully under control, with wage growth in particular a concern for policymakers.
Annual wage growth is currently running around six per cent, around twice the level consistent with inflation remaining at two per cent sustainably.
Strong wage growth could keep cost pressures elevated in the labour intensive services sector, which is another major concern for the Bank. New wage figures will come out tomorrow.
Speaking last week, Huw Pill, the Bank’s chief economist, said persistence in wage growth and services inflation points to “uncomfortable strength in those underlying inflation dynamics”.
The Bank left rates on hold at its last meeting in June, but minutes from the meeting showed that the decision was “finely balanced” suggesting many rate-setters are actively considering voting for a cut next time around.