RATE IT
UK inflation rate remains unchanged at 2% in June – what it means for your money
Watch our video to understand inflation means for your wages, mortgage and grocery shopping
THE UK's rate of inflation held steady in June as price rises stayed at the Bank of England's target level for the second month running.
The rate of Consumer Prices Index (CPI) inflation remained unchanged at 2% in June, the Office for National Statistics (ONS) said.
1
It follows nearly three years of above-target inflation with households squeezed by soaring food and energy prices.
The CPI hit the Bank of England's (BoE) 2% target level for the first time in more than three years in May.
Inflation is a measure of how much the prices of everyday goods such as food and clothes, and services such as train tickets and haircuts, have increased compared to a year earlier.
It's important to note, when inflation falls it doesn't mean prices have stopped rising, they are just increasing at a slower pace.
READ MORE IN MONEY
ONS chief executive Grant Fitzner said: “The inflation rate was unchanged in June.
"Hotel prices rose strongly, while second-hand car costs fell but by less than this time last year.
“However, these were offset by falling clothing prices, with widespread sales driving down their cost."
While some experts had predicted that inflation would fall below 2% for the first time since April 2021, other expected to see an increase driven by Taylor Swift's stadium tour in UK cities last month.
Most read in Money
Dean Butler, managing director for retail direct at Standard Life, said: "Despite speculation around the potential impact of Swiftonomics - Taylor Swift’s UK tour driving up live music and hospitality prices in June, and raising the headline figure - inflation has stayed at the BoE's 2% target.
"This will fuel ongoing speculation that we’ll see an interest rate cut as early as August."
Three key benefits that YOU could be missing out on, and one even gives you a free TV Licence
The BoE will be watching today's figures closely as it decides whether to lower its base rate on August 1.
It offers hope to mortgage holders and prospective buyers that interest rates could come down sooner rather than later.
Interest rates currently sit at a 16-year high of 5.25%.
Ben Thompson, Deputy chief executive at the Mortgage Advice Bureau, said: "This firmly opens the door for an August rate cut – the first since 2020.
"This is good news for buyers, but it’s important to remember that rates won’t fall off a cliff come August.
"Lenders have already priced in a cut for this summer, so now is the perfect time to get mortgage ready, speak to a broker, and see what your options are."
Darren Jones, chief secretary to the Treasury, added: "It is welcome that inflation is at target, but we know that for families across Britain prices remain high.
"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."
Why does inflation matter?
Inflation is a measure of the cost of living.
It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we're earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.
What it means for your money
Cooling inflation is good news for household budgets and for those hoping for a summer mortgage rate cut.
Alice Haine, personal finance analyst at Bestinvest, said: "Inflation remaining at 2% will be well received by households who may now be enjoying a little more financial wiggle room as incomes stretch further than they did a year ago. It’s important to remember, however, that prices are still on the increase, they are just rising at a significantly slower pace than at the height of the cost of living crisis."
However, even if inflation is slowing, it still means prices are rising, just at a slower pace.
It means consumers shouldn't see today's news as a signal to splash the cash, however.
Matt Hartley, director of engagement at the Money Advice Trust, the charity that runs National Debtline, said: "Millions of people are still struggling, despite lower inflation, as the fallout from the cost of living crisis continues to impact household budgets.
“The new Government needs to prioritise support for households in difficulty, including helping people with unmanageable energy debts through a Help to Repay scheme, and improving the support offered by Universal Credit.
“I’d urge anyone worried about their bills to seek free, independent debt advice from National Debtline. No one needs to struggle alone.”
In anticipation of a possible reduction to the Bank of England base rate, experts have urged mortgage holders to think about their options.
Some 1.6 million mortgages are coming off fixed rates this year, according to UK Finance.
Alice added: "Mortgage rates remain high but some major lenders have already started cutting pricing in anticipation of a rate reduction in the coming months.
READ MORE SUN STORIES
"This may deliver the reassurance nervous first-time buyers need to push ahead with a purchase, while homeowners considering an upsize might be spurred into action."
In some signs of relief for borrowers, lenders including Halifax, HSBC UK, Barclays, Santander, NatWest and Yorkshire Building Society have been chopping their mortgage rates.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
Plus, you can join our Facebook group to share your tips and stories
Topics