Inflation remains unchanged at 2%

June’s figures from the Office for National Statistics show inflation remained steady in June at 2%. 

Price rises in the UK remained static in June at 2% – the same rate as the month before and down from 2.3% in April.

June’s inflation was partly driven by hotel prices going up. And the price of services, which includes most things from restaurants to hairdressers, remain persistently high.

Inflation holding at 2% means the UK has hit the Bank of England’s (BOE) target rate for two months in a row, something it wanted to see before it would consider cutting interest rates.

But the world is a different place since May’s figures were released on 19 June.

We have a new Labour government who plans on introducing a range of measures that could affect the economy. And a pound that has strengthened against other major currencies because of the party’s landslide win.

The BOE will be cautious about the impact these changes could have. And this means economists are less certain that the bank’s members will be comfortable enough to vote on an interest rate cut when they next meet in August.

If they choose not to cut interest rates in August, attention will then turn to 19 September. An interest cut then will be a huge boost for Labour ahead of the party’s first budget, which is predicted to happen between mid-September and October.

What’s inflation?

Inflation is a measure of how the price of goods and services changes in the UK over time. For example, if a loaf of bread costs £1 but is £1.05 a year later, then annual inflation is 5%.

Increasing or decreasing inflation can have a huge impact on household finances.

How is inflation measured?

Inflation is measured by the Office for National Statistics (ONS), which tracks price changes of hundreds of regularly purchased products. Known as the ‘basket of goods and services’, the ONS compares the price differences each month with the previous year. These figures then give us inflation.

What happened to inflation in the UK?

Between September 2022 and March 2024, inflation saw double-digit growth peaking at 11.1% in October 2022. The growth followed years of historically low inflation, with it standing at 0.0% in 2015.

Several factors contributed to Britain's inflation problem:

• The global surge in energy prices, driven by the war in Ukraine and post-pandemic demand, hit the UK particularly hard.
• Brexit-related worker shortages created supply chain issues and drove up costs for businesses, which were then passed on to customers.
• A tight labour market, with more job vacancies than unemployed people, forced up wages and prices.

These unique circumstances meant that inflation in the UK peaked at a higher figure than any other big rich economy.

What does this mean for household budgets?

The Bank of England's target inflation is 2%. This doesn’t mean that household costs are coming down. They’re still rising, just at a slower rate than they were before.

Inflation directly affects household budgets because it causes an increase in the cost of living. This means expenses shoot up without you changing your buying or spending habits.  

For prices to drop, inflation would have to reverse – known as deflation – which is typically associated with a shrinking economy and a potential recession.