Bank of England faces dilemma after Taylor Swift’s policy could increase UK inflation – WBOY.com

PAN PYLAS, Associated Press

52 mins ago

FILE – A woman walks outside the Bank of England in London’s financial district on March 23, 2023. Inflation in Britain remained stable at the Bank of England’s target rate of 2% in the year to June, official figures showed Wednesday, July 17, 2024. That development could be enough for policymakers to cut borrowing costs next month. (AP Photo/Kin Cheung, File)

LONDON (AP) — The Bank of England is facing a dilemma over whether to cut its benchmark interest rate next month after official figures on Wednesday showed inflation held steady at its target despite expectations of a slight 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 target of 2% in the year to June, while most economists had predicted a fall to 1.9% as lower energy costs for households took hold.

Restaurants and hotels were the biggest contributors to the annual inflation rate, according to the statistics office. Some economists attribute the price increases to Taylor Swift’s UK tour. Swift performed in front of hundreds of thousands of people in Edinburgh, Liverpool, Cardiff and London in June and is now back in London, so there could be another jump then.

“While it’s difficult to fully disentangle this, it’s quite possible that some Taylor Swift effects were at play here and could well be reversed next month,” said Sanjay Raja, chief UK economist at Deutsche Bank.

Following the publication of the figures, financial markets now consider it less likely that the bank’s Monetary Policy Committee will have a majority in favor of cutting the key interest rate from 5.25 percent at its next meeting on August 1.

Some members of the panel have raised concerns in recent months about the scale of price increases in the vital services sector, which accounts for around 80 percent of the UK economy, and the pace of wage increases, raising the risk of another rise in inflation if interest rates are cut too soon. Many economists expect the inflation rate to rise steadily in the coming months.

“For the majority of the MPC, today’s inflation report will not be as encouraging as expected,” said Raja of Deutsche Bank. “With prices for live music and accommodation soaring, the MPC may be inclined to overlook some of the upward trend in services inflation. In any case, we now think that a rate cut in August is well balanced.”

Inflation was last at two percent in July 2021, before prices began to soar – first due to supply chain problems during the coronavirus pandemic and then due to Russia’s invasion of Ukraine, which drove up energy costs.

The Bank of England, like the US Federal Reserve and other central banks, aggressively raised interest rates from near zero in late 2021 to counter rapidly rising inflation, which peaked at over 11% in late 2022.

While higher interest rates – which cool the economy by making borrowing more expensive – have helped contain inflation, they have also weighed on the UK economy, which has barely grown since recovering from the pandemic.

Prime Minister Keir Starmer has stressed that boosting Britain’s economic growth will be the driving force of his Labour government. Later on Wednesday, his government will announce its plans for the coming year. Starmer said the measures announced in the King’s Speech to Parliament would “take the pressure off Britain” and “create prosperity for people across the country” by boosting economic growth.