UK Inflation Holds Steady at 2% in June, Complicating BoE Rate Cut Plans

UK Consumer Price Inflation Report: June 2024

On Wednesday, July 17, June’s UK inflation report warranted investor attention.

According to the June report, the UK annual inflation rate remained steady at 2.0% in June. Economists expected a June inflation rate of 1.9%.

According to the Office for National Statistics:

The Consumer Prices Index, including owner-occupier housing costs (CPIH), increased by 2.8% in 12 months to June 2024 (May: +2.8%).

• Clothing and footwear had the most marked downward contribution.
• The annual inflation rate for clothing and footwear declined from 3.0% in May to 1.6% in June.
• The largest upward contribution came from restaurants and hotels.
• Prices for restaurants and hotels were up 6.3% compared with June 2023 (May: +5.8%).
• The Core CPIH (excluding energy, food, alcohol, and tobacco) rose by 4.2% in 12 months to June 2024 (May: 4.2%).
• The CPIH services annual rate increased from 5.9% to 6.0% in June.

The effect of the UK Inflation Report on the Bank of England rate path could be significant.

Bank of England Interest Rate Path

The Bank of England will deliver its next monetary policy decision on August 1. On Wednesday, the UK inflation numbers tested investor bets on an August BoE rate cut.

UK labor market data on Thursday may prove crucial after the higher-than-expected headline inflation print. Weaker labor market conditions and softer wages could reduce consumer spending and dampen demand-driven inflation.

Lower wage growth and weak retail sales numbers (Fri) could refuel investor bets on an August 1 BoE rate cut.

GBP/USD Reaction to the June UK Inflation Report

Before the UK inflation report, the GBP/USD fell to a low of $1.29637 before climbing to a high of $1.29785.

However, in response to the inflation report, the GBP/USD surged from $1.29690 to a high of $1.29857.

On Wednesday, July 17, the GBP/USD was up 0.03% to $1.29780.

Up Next

Later in the session on Wednesday, US housing sector data and FOMC Member speeches require consideration.

Economists consider the US housing sector a bellwether of the US economy. Improving supply could indicate a robust US economy.

While increased demand may be a positive economic signal, increasing supply may ease inflationary pressures. Higher inventories could reduce housing prices and rents, dampening housing services-related inflation.

Beyond the numbers, investors should track FOMC member commentary. FOMC voting Members Thomas Barkin and Christopher Waller are on the calendar to speak. Views on the economy, inflation, and the timing of a Fed rate cut could move the dial. Support for a September Fed rate cut could fuel expectations of multiple 2024 Fed rate cuts.