Taylor Swift is a peerless performer. This has made her an economic force as well as a musical one, which brings us neatly into the latest data on Britain’s vexatious prices. They rose by an annual 2 per cent in June.
That may not seem so bad, and it is line with the Bank of England’s target, but the number was worse than the 1.9 per cent economists had hoped for.
Hotel rooms were among the chief villains of the piece. The restaurants and hotels category posted a 6.2 per cent rise and room rates were highlighted by Grant Fitzner, the chief economist of the Office for National Statistics, as a particular blackspot.
June was, of course, when a certain massive tour landed in the UK, pushing up demand for places to stay close to where the world’s biggest star was taking the stage – Edinburgh, Liverpool, Cardiff and London. Hoteliers have also been struggling to find staff, translating into higher wages and room rates.
Those in London will be drooling because there is another run of sold-out Wembley shows at the tail end of August to fatten their coffers. And Bruce Springsteen is due here, too.
The people attending Swift’s shows will surely reckon it worth the financial pain they endured. My daughter’s joyful response to the Eras tour speaks to that. And here’s the thing: this is a non-recurring phenomenon that shouldn’t overly worry the Bank of England’s rate-setting Monetary Policy Committee (MPC).
Time to put on some black metal because there was plenty in the guts of the release that will be of concern to its august membership. The first is that core inflation remained stubbornly high at an unchanged 3.5 per cent. The second is that service price inflation was similarly sticky, standing pat at an uncomfortably high 5.7 per cent (those hotels played a role). Once again, the expectations were for gentle declines.
For shoppers, there has been good news. The price of goods remained in negative territory (down 1.4 per cent). Food price inflation fell again, to 1.5 per cent from 1.7 per cent, although as I say each time I write this column, the toll of a year of horrific rises is cumulative and the burden on people on low incomes is still brutal.
However, there were offsets in the numbers to counteract the surging prices in hotels close to stadiums. Unfortunately, what that “core” number – which excludes volatile categories such as food, tobacco and energy – and the mulishly high price of services tell us is that the underlying price pressures in Britain’s economy remain troublingly strong.
That means – and it pains me to say this – the MPC is unlikely to offer borrowers any relief when it meets at the beginning of August. The City – suffused with an excess of optimism as it often is – was pricing the chance of an August rate cut at 65 per cent at the beginning of the week. That has now fallen to less than 35 per cent. The pound rose against both the dollar and the euro, which helps tell the story. Those buying holiday cash will be happy. So there’s that.
Small businesses seeking affordable credit will be anything but. I suspect the recent price cutting in the mortgage market will end too. Fixed deals are linked to long-term interest rates via the City’s interest rate swaps markets, not Bank of England base rates. The trouble is, this release may change sentiment.
The clues have been there for a while. Huw Pill – the Bank’s chief economist whom I had down as one of the “swing” voters in between the rate hawks and doves on the MPC – took a downbeat tone (for those hoping for cuts) in a speech nearly a week ago. In it, he said, services inflation and wage growth showed “uncomfortable strength”.
That uncomfortable strength was on display for all to see in the data. I’ve been sticking to September as the date I expect for the first-rate cut. I’m not so sure about that any more. Services represent the biggest part of the UK economy, and it isn’t even close. Given how persistently hot prices in this sector have been, combined with the similar strength shown by core inflation and the better-than-expected recent performance of the British economy, I’m not sure that an early cut is wise.
The Swift effect on hotels might be temporary. But Britain’s problem with inflation is not. Once inflation takes hold it is devilishly difficult to get rid of. This release shows that. The hawks on the MPC will be baring their claws in August. I’m confident they will win.
Small business owners and mortgage holders alike won’t love me for saying it, but I think they’ll be proved right. Base rates at 5.25 per cent are acting as a brake on the growth this country badly needs to find and are inflicting a lot of pain. But they are not particularly high by historical standards.
I’m afraid we are going to have to get used to them. They’re going to be with us for a while.
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