Taylor Swift is an unparalleled performer. This has made it an economic force as well as a musical force, which brings us neatly into the latest data on Britain’s annoying prices. They rose by 2 percent annually in June.
That may not sound so bad, and is in line with the Bank of England’s target, but the number was worse than the 1.9 percent economists had hoped for.
The hotel rooms were among the main villains of the piece. The restaurants and hotels category posted a 6.2 per cent rise and room rates were highlighted by Grant Fitzner, chief economist of the Office for National Statistics, as a particular black spot.
June was, of course, when a certain massive tour landed in the UK, fueling demand for places to stay close to where the world’s biggest star was taking to the stage – Edinburgh, Liverpool, Cardiff and London. Hoteliers have also struggled to find staff, translating into higher wages and room rates.
Those in London will be drooling because there’s another run of sold-out shows at Wembley at the end of August to eat up their coffers. And Bruce Springsteen is here too.
People who attend Swift’s shows will surely find it worth the financial pain they endured. My daughter’s joyful response to Era’s tour speaks for itself. And here’s the thing: this is a non-recurring phenomenon that shouldn’t worry the Bank of England’s Monetary Policy Committee (MPC) too much.
Time to put on some black metal because there was a lot in the guts of the release that would upset his membership in August. The first is that core inflation remained stubbornly high at 3.5 percent unchanged. The second is that utility price inflation was similarly sticky, staying at an unpalatable 5.7 percent (those hotels played a role). Once again, expectations were for slight declines.
For buyers, there was good news. The price of goods remained in negative territory (1.4 percent). Food price inflation fell again, to 1.5 percent from 1.7 percent, although as I say every time I write this column, the balance of a year’s terrible growth is cumulative, and the burden on low-income people is still brutal.
However, there were offsets in the numbers to counter the rising prices in hotels near the stadiums. Unfortunately, what that ‘core’ number – which excludes volatile categories such as food, tobacco and energy – and the very high price of services tells us is that the underlying price pressures in Britain’s economy remain worryingly strong.
That means — and it pains me to say this — the MPC is unlikely to offer borrowers any relief when it meets in early August. The City — brimming with an overabundance of optimism as it often does — was weighing the possibility of an August rate cut to 65 percent earlier in the week. This has now fallen to less than 35 percent. The pound rose against the dollar and euro, which helps tell the story. Those who buy money for the holidays will be happy. So it’s not that.
Small businesses looking for affordable loans will be anything but. I suspect the recent price drop in the mortgage market will end as well. Fixed deals are linked to long-term interest rates via the City’s interest rate swap markets, not Bank of England base rates. The problem is that this release can change the feeling.
The data has been there for a while. Huw Pill – the Bank’s chief economist, who I had pegged as one of the MPC’s rate hawks and doves “swinging” voters – took a condescending tone (for those hoping for cuts) in a speech almost a week ago. In it, he said, utility inflation and wage growth showed “uncomfortable strength.”
That unpleasant force was displayed for all to see in the data. I’ve stuck to September as the date I’m waiting for the first step down. I’m not sure about that anymore. Services represent the largest part of the UK economy and it’s not even close. Given how consistently hot prices have been in this sector, combined with the similar strength shown by core inflation and the recent better-than-expected performance of the British economy, I’m not sure an early cut is in order. wise.
The Swift effect on hotels may be temporary. But Britain’s problem with inflation is not. Once inflation takes hold, it’s devilishly difficult to get rid of. This publication shows that. The hawks at the MPC will have their talons out in August. I am convinced that they will win.
Small business owners and mortgage holders won’t want me to say this, but I think they’d be right. Base rates at 5.25 percent are acting as a brake on the growth this country so desperately needs to find and are causing it a lot of pain. But they are not particularly high by historical standards.
I’m afraid we’ll have to get used to them. They will be with us for a while.