The UK’s inflation rate is expected to drop this week but is likely to remain four times over the Bank of England’s official target of 2%.
City economists predict that June’s consumer prices index, due on Wednesday, will fall to about 8.2% in the 12 months to June, down from the 8.7% recorded in April and May.
This would indicate that the cost of living squeeze has eased slightly, bringing some relief to households. However, it would still leave Britain with much higher inflation than the eurozone, where it slowed to 5.5% in June, and the US, where it dropped to 3%, a two-year low.
The bulk of June’s drop in inflation will be down to fuel prices, predicts Morgan Stanley’s UK economist, Bruna Skarica. “On our estimates, they fell by 2% last month, and base effects are meaningful, too, as fuel prices rose by 9.3% in June last year,” Skarica said.
Skarica predicts that annual food inflation will fall to 17.5% year on year, still high but down from the 19.1% peak reached in March. However, UK core inflation, a measure stripping out volatile factors such as food and energy, could remain unchanged at 7.1%.
Sanjay Raja, Deutsche Bank’s chief UK economist, hopes to see more signs of price normalisation among food products in June, along with a continued drop in energy prices.
“Core goods prices, too, will likely slow on the margins. Overall, our models point to headline CPI coming in at 8.2% year on year,” Raja said. He said the warmer weather was lifting prices for certain goods such as clothing and foods.
The Bank of England governor, Andrew Bailey, said last week that UK consumer price inflation was “unacceptably high” but said it would fall “markedly” this year.
The Labour party leader, Keir Starmer, said on Sunday it was too soon to set out whether the Bank of England’s 2% inflation target would be revised if his party wins the next election.
“That’s something for us to address closer to the election. We’ve got probably two, maybe three fiscal events before the election. We need to wait until we see what the state of the economy is,” Starmer told the BBC.
A Labour spokesperson later insisted the party is not looking to alter the BoE’s inflation target, saying “We are not looking at changing the inflation target and will not be looking at it.”
