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.
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.
Some seniors say the Social Security Administration's cost-of-living adjustment won’t help much in their ability to pay for their daily expenses. The agency announced Friday the annual cost-of-living adjustment will go up by 2.8% in 2026, translating to an average increase of more than $56 for retirees every month. Eighty-year-old Florence, South Carolina, resident Linda Deas says it does not match the current "affordability crisis.” The benefits increase will go into effect for Social Security recipients beginning in January. Friday’s announcement was meant to be made last week but was delayed because of the federal government shutdown. Recipients got a 2.5% COLA boost in 2025 and a 3.2% increase in 2024.
Wall Street is heading for records after an update said U.S. households are feeling a bit less pain from inflation than feared. The S&P 500 climbed 1% Friday and was on track to top its all-time high set earlier this month. The Dow Jones Industrial Average jumped 529 points, and the Nasdaq composite rose 1.3%. Both are also heading toward records. The inflation data could clear the way for the Federal Reserve to keep cutting interest rates in hopes of helping the slowing job market. A strong earnings reports from Ford Motor and continued gains for AI stars also drove stocks higher.
Federal Reserve Chair Jerome Powell says that a sharp slowdown in hiring poses a growing risk to the U.S. economy.
Three researchers who probed the process of business innovation have won the Nobel memorial prize in economics for explaining how new products and inventions promote economic growth and human welfare, even as they leave older companies in the dust.
U.S. stocks are rising and recovering some of their sell-off from Friday. The S&P 500 climbed 1.6%.
President Donald Trump says “there seems to be no reason” to meet with Chinese leader Xi Jinping as part of an upcoming trip to South Korea after China restricted exports of rare earths needed for American industry. The Republican president suggested Friday he was looking at a “massive increase” of import taxes on Chinese products in response to Xi’s moves. Trump says one of the policies the U.S. is calculating is "a massive increase of Tariffs on Chinese products coming into the United States." A monthslong calm on Wall Street was shattered, with U.S. stocks falling on the news. The Chinese Embassy in Washington hasn't responded to an Associated Press request for comment.
Most members of the Federal Reserve’s interest-rate setting committee supported further reductions to its key interest rate this year, minutes from last month’s meeting showed.
From Wall Street trading floors to the Federal Reserve to economists sipping coffee in their home offices, the first Friday morning of the month typically brings a quiet hush around 8:30 a.m. eastern, as everyone awaits the Labor Department’s monthly jobs report.
