Taylor Swift’s tour fueled inflation, but the Bank of England can get rid of it
![Taylor Swift’s tour fueled inflation, but the Bank of England can get rid of it Taylor Swift’s tour fueled inflation, but the Bank of England can get rid of it](https://i0.wp.com/static.independent.co.uk/2024/06/28/21/b405f4c1f168634747240608cc84ea73Y29udGVudHNlYXJjaGFwaSwxNzE5NjkwODg2-2.76683979.jpg?quality=75&width=1200&auto=webp&w=1200&resize=1200,800&ssl=1)
Taylor Swift is a peerless artist. That makes her as much an economic force as a musical one, which brings us to the latest data on Britain’s infuriating prices. They rose 2% annually in June.
That may not sound too bad, and is in line with the Bank of England’s target, but the figure is worse than the 1.9% economists had hoped for.
Hotel rooms are among the main culprits in the article. The restaurant and hotel category saw a 6.2% increase and room rates were singled out as a particular black spot by Grant Fitzner, chief economist at the Office for National Statistics.
June saw the arrival of a major UK tour, which saw demand for accommodation near the venues of the world’s biggest stars: Edinburgh, Liverpool, Cardiff and London soar. Hoteliers also struggled to find staff, leading to higher wages and room rates.
Londoners will be salivating as another series of sold-out concerts will take place at Wembley at the end of August to fill their coffers. And Bruce Springsteen is also expected here.
Swift concert-goers will surely feel that the financial hardship they endured was worth it. My daughter’s joyful reaction to the Eras tour is proof of that. And here’s the thing: this is a one-off phenomenon that should not overly worry the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates.
It’s time to put on some black metal, because the statement contains many elements that will worry its august members. The first is that core inflation remained stubbornly high at an unchanged 3.5%. The second is that service price inflation remained equally stable, at an uncomfortably high 5.7% (those hotels played a role). Once again, expectations were for moderate declines.
For consumers, the news is good. The price of goods remained negative (-1.4%). Food inflation fell again, from 1.7% to 1.5%, although, as I say every time I write this column, the toll of a year of appalling increases is cumulative and the burden on low-income people remains heavy.
There are, however, some elements that help to offset the rise in prices in hotels near stadiums. Unfortunately, this ‘base’ figure – which excludes volatile categories such as food, tobacco and energy – and the excessively high price of services tell us that the underlying price pressures in the UK economy remain extremely high.
This means – and it pains me to say this – that the MPC is unlikely to offer any relief to borrowers when it meets in early August. The City – as over-optimistic as it often is – was putting the possibility of an August rate cut at 65% earlier this week. That figure has now fallen to less than 35%. Sterling has appreciated against the dollar and the euro, which partly explains the move. Those buying cash for the holidays will be happy. So there you have it.
Small businesses looking for affordable credit will not be happy at all. I think the recent price decline in the mortgage market will also end. Fixed rate contracts are linked to long-term interest rates via the City’s interest rate swap markets, not the Bank of England’s base rates. The problem is that this release could change sentiment.
To be fair, the signs have been there for some time. Huw Pill – the Bank’s chief economist, whom I considered one of the “swingers” between the rate doves and the rate proponents on the Monetary Policy Committee – struck a downbeat tone (for those hoping for cuts) in a speech almost a week ago. He said that services inflation and wage growth were showing “uncomfortable strength”.
This uncomfortable strength has been highlighted by the data. I am sticking with September as the date when I expect a first rate cut. I am not so sure anymore. Services make up the largest part of the UK economy, and that is far from being the case. Given the persistence of high prices in this sector, the similar strength of underlying inflation and the better-than-expected recent performance of the UK economy, I am not sure that an early cut is wise.
The Swift effect on hotels may be temporary. But Britain’s inflation problem is not. Once inflation has taken hold, it is extremely difficult to get rid of. This publication shows that. The MPC hawks will show their claws in August. I am convinced they will win.
Small business owners and mortgage holders won’t like me for this statement, but I think they’ll be right. The 5.25% base rate is holding back the growth the country desperately needs and causing a lot of pain. But it’s not particularly high by historical standards.
I’m afraid we’ll have to get used to it. They’ll be with us for a while.
News Source : www.independent.co.uk
Gn bussni