2% again, but not so reassuring for the Bank

Melanie Baker, Senior Economist at Royal London Asset Management

"Year-on-year headline CPI may have stayed at 2.0% in June, but that was a tenth stronger than consensus. Importantly, core and services inflation were also a tenth stronger than expected.

"In terms of key indicators of underlying inflation pressure and domestically driven inflation, services inflation still looks ‘sticky’ at high levels. Looking across the main categories of services inflation the picture was mixed, but outside of perhaps transport insurance and maybe catering services it is hard to detect a consistent pattern of significantly falling inflation in the last few months. 

"Just because inflation is at the 2% inflation target does not mean that we will see a rate cut in August. Watching indicators of underlying domestically driven inflation is key when thinking of the Bank of England’s (BoE) next move. It continues to focus on measures of services inflation and pay growth – alongside measures of labour market slack – to help it judge whether CPI inflation will sustainably hit the target. As of today, services inflation doesn’t provide as much reassurance as I’d have hoped. 

"The next pay growth figures and labour market figures are due out tomorrow. Headline inflation was expected by BoE staff to come in at 2.0% on the figures they published in May, so the June data is at least in line with that; once you dig below the surface of the headline number, however, this wasn’t a particularly convincing set of evidence in favour of an August rate cut and in isolation raises the probability that it will be November instead. Let’s see what tomorrow’s labour market data brings."