Inflation in the UK stayed at two per cent last month, new official figures show.
It means it matched the target rate set by the Government and the Bank of England for the second month running.
Many have blamed the ‘Taylor Swift effect’.
Here, we take a look at what the latest inflation data means for households and the economy – and explain why the American singer is being blamed for stagnation.
What is inflation?
Inflation is the term used to describe the price of goods and services rising.
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The inflation rate refers to how quickly prices are going up.
June’s inflation rate of two per cent means that, if an item cost £100 a year ago, the same thing would now cost £102.
It is unchanged from the inflation rate recordedin May, meaning that prices are increasing at the same pace as they were the month before.
Does it mean prices have stopped rising?
No, prices across the country are still rising, just at a much slower rate than they were before.
But the Government does not want prices to fall. It sets the Bank of England, the UK’s central bank, a target to keep the inflation rate at two per cent.
It says this is the ideal level to help people and businesses plan their spending, and keeps price rises low and stable.
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Has anything become cheaper?
Yes, some items have been going down in price. Clothing and footwear prices fell in June compared with May, with sales in shops helping drive down costs. Some food prices also fell last month, such as fish, milk, cheese and eggs. Electricity prices have also dropped sharply from a year ago.
However, other things have been getting more expensive. In particular, restaurant and hotels prices jumped by 6.2 per cent in June, with the cost of a hotel room jumping by nearly nine per cent.
Package holiday prices also surged last month, while cinema, theatre and concert prices continued to rise.
Is it true that Taylor Swift’s tour was behind this?
Read More
Some economists have suggested that the “Taylor Swift effect” prompted hotels and restaurants to raise their prices by more than usual during the month.
Bank of England policymakers may be cursing Taylor Swift
Laura Suter, AJ Bell
The singer toured sold-out arenas in cities across the UK in June – in Cardiff, Edinburgh, Liverpool and London – leading to fans spending more on overnight stays.
Sanjay Raja, chief UK economist for Deutsche Bank, said it is “certainly very possible that some Taylor Swift effects were at play” in relation to the “staggering” jump in overnight hotel prices.
Laura Suter, director of personal finance at AJ Bell, said: “Bank of England policymakers may be cursing Taylor Swift, as fans spending on hotel rooms and in restaurants during her Eras tour is likely to be one reason that prices rose in June, meaning that overall inflation flatlined at two per cent rather than fell.”
However, due to the date that the office for National Statistics (ONS) collects its data – in this case, on or around June 11 – it is hard to determine how big an impact individual events have on the monthly data.
Doesinflation hitting its target mean the Bank of England can lower interest rates?
The Bank of England uses interest rates as a tool to help control inflation.
Rates are currently at 5.25 per cent, having been held at the level since August last year.
The fact the inflation rate hit its target for two months in a row will be good news for policymakers at the Bank.
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However, experts stressed they will be more likely to consider the finer details of the inflation data rather than the overall rate.
In particular, services inflation – which looks only at services-related categories such as hospitality, culture and housing – remained higher than expected last month.
Ms Suter said: “This sticky element of inflation is of big concern to the Bank and even a small drop in the right direction would have given more confidence that now is the right time for interest rate cuts.”
Luke Bartholomew, deputy chief economist for Abrdn, said the Bank’s next decision in August sits on a “knife edge” following the latest inflation data.