Bank of England Focuses on Inflation Rise Amid Taylor Swift Effect

Taylor Swift could be among the dilemmas facing the Bank of England this summer, as economists predict the American singer’s arena tour could have put some pressure on UK inflation last month.

A busy week for economic data will shed more light on the economy after inflation returned to the Bank’s 2% target in May.

It marked a milestone after nearly three years of above-target inflation, thanks largely to food prices rising at a much slower rate than before.

Economists are widely expecting the rate of Consumer Prices Index (CPI) inflation to have stayed at, or close to, 2% in June.

Analysts for Investec and Deutsche Bank are predicting CPI to have stayed put, while Pantheon Macroeconomics expects it to have dipped to 1.9% for the latest month, below the Bank’s target level.

But experts said it will be the finer details of the inflation data that could be more relevant for the central bank.

Sanjay Raja, a senior economist for Deutsche Bank, said services inflation – an important gauge which looks only at service-related categories such as hospitality, culture, and housing – could drop to 5.6% from 5.7% in May as it continues its “slow descent” toward target levels.

But he cautioned over one-off pressures including live music price rises, driven by Taylor Swift’s UK arena tour.

Swift – who performed in Edinburgh, Liverpool, Cardiff, and London in June – could have pushed up average concert prices during the month.

James Smith, ING’s developed market economist, said: “Policymakers are still almost exclusively focused on services inflation, and it’s the one remaining release of this data that will determine whether the Bank can cut rates in August.”

This is because prices for event tickets are collected by the Office for National Statistics (ONS) during the month that the event happens, rather than when tickets go on sale.

Mr. Raja therefore said he expects live music inflation to nearly double to around 10% in June from 5.7% in May.

Meanwhile, economists will also be watching new labour market data released on Thursday to see how fast average wages are rising in the UK, especially after the National Minimum Wage rose in April.

The Bank of England has repeatedly pointed to services inflation and rising wages as key indicators still putting pressure on wider inflation.

Andrew Bailey, the Bank’s Governor, stressed last month that it needs “to be sure that inflation will stay low”, which is why it decided to hold interest rates at 5.25% “for now”.

The Bank’s chief economist Huw Pill said on Wednesday that it was “hard to dispute that inflation persistence in the UK continues to prove – well, persistent”.

James Smith added that barring any big surprises in the inflation data, he is expecting the Bank to want to start cutting rates this summer.

It remains to be seen how the Bank of England will navigate the potential impact of Taylor Swift’s tour and other influences on UK inflation. The focus will be on the detailed economic indicators, particularly services inflation, to make critical monetary policy decisions in the coming months.

Source: The Independent, Financial Times