Inflation Remains At 2 Per Cent - But Bad News For Mortgagors As Domestic Inflation Appears Sticky

18th July 2024

CPI inflation remained at 2 per cent in the 12 months to June 2024 - but there were some worrying indications that key measures of domestic inflation remained stubbornly high, denting hopes that the Bank of England might cut interest rates in the near term, the Resolution Foundation said.

This steady rate of inflation did see some changes beneath the surface, with falls in the price of clothing and footwear pushing down on inflation by 0.1 percentage points in June, although this was offset by a sharp increase in the price of hotels, which added around 0.1 percentage points.

UK headline CPI inflation remains lower than in many other advanced economies including the US, France and Germany, having had higher and more persistent inflation during the cost-of-living crisis.

The Foundation notes that while this sustained fall in the rate of inflation is welcome news, the inflation shock of recent years continues to cast a long shadow. Overall prices have risen by 20 per cent over the past three years (since July 2021).

There were signs of stubbornly persistent domestic inflation as services-price inflation (which the Bank of England uses as a key measure of domestic inflation) remained at 5.7 per cent, making an imminent cut to interest rates less likely. Mortgagor households may need to continue grappling with delayed rate cuts, alongside the legacy of higher prices.

James Smith, Research Director at the Resolution Foundation, said:

"Inflation remained at 2 per cent but showed signs of ‘stickiness' as more domestically-driven services inflation remained at 5.7 per cent.

“While it is welcome news that inflation is at the Bank of England’s 2 per cent target, the high price of essentials – with energy prices up by 53 per cent since July 2021, and food prices by 31 per cent – will be with us for the foreseeable future.

“The combination of a sustained high price level, continued uncertainty about the size and timing of Bank of England rate cuts, and sticky services inflation means that families will continue to feel the effects of the high cost of living.