UK inflation remained at the Bank of England’s target of 2% in June, marking the slowest rate of price increases in nearly three years. The annual rise in prices, unchanged from May, was partly influenced by higher hotel prices, according to official figures.

However, persistent price increases in services, including restaurants and hairdressers, may prompt Bank of England policymakers to reconsider the timing of potential interest rate cuts. The Bank’s base rate, which influences mortgage and borrowing costs, is currently at a 16-year high of 5.25%, following increases to combat high inflation.

The Monetary Policy Committee (MPC), responsible for setting the rate, has maintained this level for several months. Some economists anticipate a rate cut at the next vote on 1 August. The latest data from the Office for National Statistics (ONS) revealed that hotel prices surged in the year to June, while secondhand car prices fell, albeit less than the previous year. These trends were balanced by a decrease in clothing prices, as retailers offered extensive sales to attract shoppers.

The key measures of inflation monitored by the Bank of England remained unchanged. Inflation in the services sector stayed at 5.7%, and core inflation, which excludes volatile items like energy prices, held at 3.5%.

These figures, along with other recent positive economic indicators, may influence the Bank of England committee’s decision on interest rates next month. The International Monetary Fund recently suggested that the UK might need to maintain higher interest rates for a longer period to effectively combat inflation.

Markets have been expecting that rate cuts might begin on 1 August, potentially lowering fixed mortgage rates. However, the latest inflation data indicate that the decision will be finely balanced.