The Bank of England is bracing for a hindrance in its competition against the high price rise of this week, as it is expected that the headline rate will increase for the first time this year, giving importance to the ongoing strain of the living cost crisis.
Amid a week of important updates on behalf of the British economy, the official statistics are yet due by Wednesday. It is expected that the data will reveal that the inflation of July has already crossed the targeted mark of 2 percent, which was set by the Bank of England, and it results in a rapid rise in prices for airfares, holiday packages, and holiday hotels.
The city economists have predicted that the headline inflation rate will witness a rise of around 2.3 percent after remaining stagnant for two months (May and June) at the rate of 2 percent, which indicates that it’s their first increase in rates since December 2023.
The forecasts are results of a slighter turndown in household energy prices during the month of July compared to last year’s same time frame, where the prices show a dynamic decline, which leads to a year-by-year price rise situation.
Economic analysts have stated that despite the declining rate of service prices, the price of the British economy`s key sectors will still remain higher, with an expected rate of 5 percent or above. Sectors such as airfares, holiday packages, and hotels are on the list of higher price rises.
This follows a momentous increase in the cost of the one-night stays during this year, basically due to new occasional trends since the end of the COVID-19 period. To respond to the high demand, the hotels have set up a surge pricing method, particularly around the United Kingdom tour dates for celebrities like Pink and Taylor Swift.
The United Kingdom`s chief economist of Pantheon Macroeconomics, Mr. Rob Wood, has stated that the ONS surveys are based on 100 hotels, which also indicate outliers, which means that due to some famous events, the hotel prices rise. For example, due to celeb Pink’s concert, which was in the month of June, the Welsh hotel`s prices witnessed high inflation, which skews the data. Although some hotels’ prices can be inflated, they are completely legitimate, Rob says.
The increase in headline rates is a result of the Bank of England`s early decision this month’s early decision to lower the interest rate for the first time since the COVID-19 pandemic began. They are planning to reduce the interest rates to 5 percent, which was around 5.25 percent previously. It will be a great relief for the households.
The inflation rates were all-time high at around 11.1 percent during October 2022, which was due to the Russian invasion of Ukraine, but now the present data states that the inflation has declined sharply compared to the previous one.
There is a caution given by the Bank of England that the situation of price rises can get worse compared to now because there are high chances that the rates can rise up to 2.75 percent during the second half of this year. The reason for this rise can be the increasing prices of service sectors and the supple job market in the UK. But it is also estimated that by the year 2027, the headline high rates will have high chances of a fall of around 1.7 percent and an additional drop of around 1.5 percent.
The Bank of England is anticipated to lower its base interest rates to about 3.5 percent by the end of 2025. Although there is caution given by the Governor, Mr. Andrew Bailey, that it will be too risky to reduce the borrowing cost too quickly or even with a large difference, this is due to the enduring inflationary pressure.
Thursday`s official data is expected to indicate something related to the economy that has sustained its recovery from the recession period of three months, where its leading is showing till the end of June. City analysts have estimated that there will be growth of around 0.7 percent by the second quarter of this year.
Meanwhile, it is expected that through Tuesday`s job market data, the job market will show a slowdown in the upcoming months. The city analysts have forecast that there will be an increase in unemployment rates and a deceleration in wage growth.
A data report on Monday from the Chartered Institute of Personnel and Development (CIPD) has indicated that the employees must stay ready to face a wage drop of around 3 percent, and also down by 4 percent, estimated early this year. The workers may still face a worse situation as compared to the last few years, but the inflation is now controllable and the pay scale might increase in the near future.
