LONDON (AP) — The Bank of England is facing a dilemma about whether to cut interest rates next month after official figures Wednesday showed inflation holding steady at its target against expectations of a modest decline, possibly as a result of Taylor Swift’s Eras Tour.
The Office for National Statistics said inflation, as measured by the consumer price index, remained at the bank's 2% target in the year to June. Most economists had predicted a decline to 1.9% as lower domestic energy bills filter through.
The statistics agency said the largest upward contribution to the annualized inflation rate came from restaurants and hotels, with some economists attributing the increases to Taylor Swift's tour of the U.K. Swift performed to hundreds of thousands during June in Edinburgh, Liverpool, Cardiff and London and is back in London, so there could be another potential spike then.
"While difficult to fully untangle, it’s certainly very possible that some Taylor Swift effects were at play here and could very well reverse out next month," said Sanjay Raja, chief U.K. economist at Deutsche Bank.
Following the release of the figures, financial markets think it's now less likely that there will be a majority in the bank's Monetary Policy Committee in favor of cutting the main interest rate from 5.25% at its next meeting on Aug. 1.
Some on the panel have voiced concerns in recent months about the scale of price rises in the crucial services sector, which accounts for around 80% of the British economy, as well as the pace of wage increases, which raise the risks of an inflation rebound if interest rates are cut too soon. Many economists are factoring a steady rise in the headline inflation rate over the coming months.
“For the majority of the MPC, today’s inflation report won’t be as encouraging as it may have anticipated,” said Deutsche Bank's Raja. “With live music and accommodation prices rising at such speed, the MPC could potentially be minded to look past some of the upside in services inflation. To be sure, we now think that an August rate cut is finely balanced.”
The last time inflation was at 2% was in July 2021 before prices started to shoot up, first as a result of supply chain issues during the coronavirus pandemic and then because of Russia’s invasion of Ukraine, which pushed up energy costs.
The Bank of England, like the U.S. Fed and other central banks, raised interest rates aggressively in late 2021 from near zero to counter the rapid increase in inflation, which hit a peak of above 11% in late 2022.
Higher interest rates — which cool the economy by making it more expensive to borrow — have helped ease inflation, but they’ve also weighed on the British economy, which has barely grown since the pandemic rebound.
Prime Minister Keir Starmer has stressed that upping the U.K.’s economic growth will be the driving mission of his Labour government. Later Wednesday, his government is to announce its plans for the coming year. Starmer said the measures announced in the King’s Speech to Parliament would “take the brakes off Britain” and “create wealth for people up and down the country” by spurring economic growth.
The mighty heft of Amazon is pulling the U.S. stock market higher. The S&P 500 rose 0.6% Friday, erasing some of its slump from the day before and pulling closer to its all-time high set on Tuesday. The index is on track to close a third straight winning week and a sixth straight winning month, which would be its longest monthly winning streak since 2021. The Dow Jones Industrial Average added 65 points, and the Nasdaq composite climbed 1.1%. Amazon led the way after delivering a much bigger profit than analysts expected. Treasury yields eased a bit in the bond market.
President Donald Trump said he has decided to lower his combined tariff rates on imports of Chinese goods to 47% after talks with Chinese leader Xi Jinping on curbing fentanyl trafficking.
The Federal Reserve cut its key interest rate Wednesday for a second time this year as it seeks to shore up economic growth and hiring even as inflation stays elevated. The move comes amid a fraught time for the central bank, with hiring sluggish and yet inflation stuck above the Fed’s 2% target. Compounding its challenges, the central bank is navigating without much of the economic data it typically relies on from the government. The Fed has signaled it may reduce its key rate again in December but the data drought raises the uncertainty around its next moves. Fed Chair Jerome Powell told reporters that there were “strongly differing views” at the central bank's policy meeting about to proceed going forward.
The Federal Reserve will almost certainly cut its key interest rate on Wednesday and could signal it expects another cut in December as the central bank seeks to bolster hiring. A cut Wednesday would be the second this year and could benefit consumers by bringing down borrowing costs for mortgages and auto loans. Since Fed chair Jerome Powell strongly signaled in late August that rate cuts were likely this year, the average 30-year mortgage rate has fallen to about 6.2% from 6.6%. Still, the Fed is navigating an unusual period for the U.S. economy and its future moves are harder to anticipate than is typically the case.
Stocks are rallying toward more records ahead of a week packed with potentially market-moving events. The S&P 500 rose 1% Monday. The Dow Jones Industrial Average added 224 points, and the Nasdaq composite jumped 1.7%. Stocks also climbed in Asia ahead of a meeting on Thursday between the heads of the United States and China. The hope is that the talks could clear rising tensions between the world’s two largest economies. This upcoming week will feature profit reports from some of Wall Street's most influential companies and a meeting by the Federal Reserve on interest rates. Gold fell back toward $4,000 per ounce.
U.S. and Chinese officials say a trade deal between the world’s two largest economies is drawing closer. The sides have reached an initial consensus for President Donald Trump and Chinese leader Xi Jinping to aim to finalize during their high-stakes meeting Thursday in South Korea. Any agreement would be a relief to international markets. Trump's treasury secretary says discussions with China yielded preliminary agreements to stop the precursor chemicals for fentanyl from coming into the United States. Scott Bessent also says Beijing would make “substantial” purchases of soybean and other agricultural products while putting off export controls on rare earth elements needed for advanced technologies.
