The UK inflation rate remains steady at 2%, which is welcome news for the country’s business networks and consumers, although perhaps not the best news they could be hoping for.
An ideal scenario would see inflation fall lower than 2%, further elevating financial pressure on businesses and the public. However, the fact that it has not risen once again, and remains at the target rate for the Bank of England (BofE), is undoubtedly a positive.
Office for National Statistics (ONS) figures show that the Consumer Prices Index (CPI), meaning the UK inflation rate, rose 2% in the 12 months to June 2024. This is the same rate as the 12 months to May 2024.
The next big announcement for consumers will come in two months’ time, when the BofEwill meet to discuss interest rates. The base rate stands at 5.25%, and although some in the central bank’s leadership have voted to reduce it by 0.25% in previous meetings, the majority seem uncertain.
“The fact that inflation is not just meeting the target, but that it’s sat steady for two months at 2% is good news,” says Alastair Douglas, CEO of Totally Money, a personal finance app.
“And with the Bank of England’s rate settlers meeting in a fortnight’s time, we can expect to hear cries for a cut to ease the pressure on struggling households.
“However, there is a worry that inflation could rise again later this year, and if rates do come down, it might just be 0.25 percentage points – meaning borrowing will still be expensive. The era of higher rates is here to stay – at least for the near future.”
Regardless of the BofE’s forthcoming decision, the fact inflation remains steady is still positive news, not just for businesses and customers but also for the newly elected Labour government – an increase in inflation just two weeks into its administration would be a PR disaster for PM Keir Starmer’s new cabinet.
Inflation has been a constant worry for Britain’s economic policymakers, finance and banking industry stakeholders, and above all the general public, for the past few years. The rate reached an all-time high of over 11% in October 2022, but it fell steadily throughout the year from 4% in January to 2% in May.
Shortly after this, former PM Rishi Sunak opted to call an election, likely hoping to capitalise on the decline in inflation and 0.6% growth in Britain’s GDP earlier in the year. His efforts proved unsuccessful, however, and the Conservative Party was removed in a landslide election, ending 14 years of government.
Keeping inflation low, and maybe even reducing it further, will be a key priority for the new Labour government. Although the party has a myriad of policies planned – with 35 laws due to be outlined in the King’s Speech later today – economic performance is arguably the most important
Darren Jones, recently appointed Chief Secretary to the Treasury in Starmer’s government, said: “It is welcome that inflation is at target, but we know that for families across Britain prices remain high. We face the legacy of fourteen years of chaos and economic irresponsibility.
“That is why this government is taking the tough decisions now to fix the foundations so we can rebuild Britain and make every part of Britain better off.”
The Labour Party worked hard during its election campaigning to present itself as a party of business. Rachel Reeves, then the Shadow Chancellor of the Exchequer and now filling the top-job at HM Treasury, put this point across in a series of speeches and meetings with British businesses. Similar meetings have occurred post-election.
Now in power, the party will have to work even harder to prove its credentials. The party has a range of policies planned to keep the pedal to the metal on economics, some of which will be announced later today.
If the party’s manifesto and pre-election policy documents are anything to go by, Britain’s fintech and payments sectors can expect a lot of contact from Labour Ministers, with City Minister and Economic Secretary Tulip Siddiq a likely suitor.
As Totally Money’s Alexander notes, “while the new government has promised to kickstart the economy, it has a tough job on their hands”.
He continues: “Lower inflation doesn’t mean people are now coping, and many are still feeling the impact of the cost of living crisis. Prices remain high, and with little support from the previous government, people have turned to credit to help plug the gap.
“However, more than 23.3 million people are locked out of the mainstream financial system, and are unable to access high street credit products. This has resulted in a credit vacuum, with the void being filled by unregulated and illegal money lending. 14 million adults are using buy now pay later, and 3 million have turned to loan sharks.
“A clear plan of action and collaboration between the government, the Bank of England, and the financial services industry is needed if we’re to help people get their finances back on track, and the economy moving forward. Without that, millions of people will continue to feel the impact of the cost of living crisis for years to come.”
