U.K. Inflation Steady as Economists Puzzle Over ‘Taylor Swift Effects’

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U.K. Inflation Steady as Economists Puzzle Over ‘Taylor Swift Effects’

Inflation in Britain held steady in June as the Bank of England inches toward its first interest rate cut in years and economists pondered whether a global pop star helped keep services prices higher.

Consumer prices rose 2 percent from a year earlier, the

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said Wednesday, the same rate as in May, and in line with the central bank’s target. Inflation was pulled down by cheaper clothing but offset by a jump in the price of hotel rooms. Food inflation also slowed, with prices rising just 1.5 percent compared with a year ago.

The inflation report and data on wage growth expected on Thursday are being closely watched by investors, who had been ******** on a 50 percent chance the central bank will cut rates at its meeting in early August.

But the June inflation data came in slightly higher than expected. Core inflation, which excludes energy and food prices, was expected to dip but remained at 3.5 percent in June. Traders reduced their bets on an August rate cut, giving it about a 35 percent chance.

Inflation in the services sector, which includes categories like hospitality, held steady at 5.7 percent in June, defying economists’ expectations for a fall. Wage costs make up a significant proportion of services inflation, meaning once those costs start to rise, it can be hard to bring prices down.

The increase in hotel prices in June — up almost 9 percent from the previous month — coincided with Taylor Swift’s Eras Tour landing in Britain. The tour has become something of an economic phenomenon, with potentially inflationary consequences. Ms. Swift performed 10 shows in Britain in June, and is returning in August.

“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,” Sanjay *****, the chief U.K. economist at Deutsche Bank, wrote in a note.

Strategists at TD Securities noted that Ms. Swift’s tour probably pushed up services inflation a little because live music prices were higher, but it was ******* to tell whether her tour was responsible for the jump in hotel prices. Britain’s statistics agency collected data on overnight hotel room costs on June 11 and there was no concert on that day, they noted.

Central banks around the world are tentatively lowering rates or suggesting cuts in a sign that the worst of the recent inflation crisis is over, but policymakers are wary that rising energy prices, strong wage growth or other price pressures could keep inflation uncomfortably high. The ********* Central Bank cut rates last month but is expected to hold off in its meeting this week. The Federal Reserve has avoided giving any timing on rate cuts, even after signaling they were likely to come.

For nearly a year, policymakers at the Bank of England have held interest rates at the highest level since 2008. But in recent months, as inflation has slowed considerably, pressure has grown on the bank to cut rates, which would ease the burden on mortgage holders, potentially reignite construction activity and make it cheaper for businesses to get loans. The last time rates were reduced was in March 2020, at the start of the coronavirus pandemic, when rates were cut to 0.1 percent. They have since been raised to 5.25 percent.

Most members of the nine-person rate-setting committee have resisted the pressure to cut rates. Even as the headline rate of inflation has dropped, inflation in the services sector has been stubbornly high and wage growth has been strong. Central bank officials, doubting whether inflation will stay sustainably low, have not wanted to risk cutting rates prematurely.

Resistance to rate cuts from some policymakers had begun to abate. There are tentative signs that the labor market is cooling, with data this week expected to show wage growth slowing. The minutes from the Bank of England’s last policy meeting, in June, emphasized that the decision for some officials to hold rates was “finely balanced,” suggesting that barring major surprises, they could switch their vote to a cut.

But whether the June inflation data is enough to sway them toward a rate cut is unclear.

For the majority of the rate-setting committee, “today’s inflation report won’t be as encouraging as it may have anticipated,” Mr. ***** said, adding that higher-than-expected services inflation “raises the bar” for an August rate cut.

Swati Dhingra, a member of the policy committee and one of the strongest proponents of cutting rates, said this week that the

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to “stop squeezing living standards” in an effort to lower inflation.

At the other end of the spectrum,

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that he would “rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.”

But only five votes are needed for a rate cut, so if other members, including a new policymaker, Clare Lombardelli, join Ms. Dhingra, a gradual lowering of interest rates could begin in just a few weeks.

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