UK inflation figures for July, released today, came in well above expectations, increasing to 3.8% from June’s 3.6%. This step up is a clear indication of continued economic strain especially in heavily impacted industries like hospitality and travel. The Office for National Statistics (ONS) reported that only three categories in the consumer price index (CPI) exhibited significant inflationary growth during this period: restaurants and hotels, communication, and travel.
Biggest contributor to inflation is by accelerating price increases in hospitality sector. Restaurant prices, meanwhile, have gone nuts, increasing at a blistering annualized rate of 3.3%. This increase represents one of the sharpest increases seen in the entire CPI goods basket. Accommodation services, which includes hotels, were hit hard. In June they had officially deflated by a rate of 0.5%. July saw them return with a solid 0.13% growth, reflecting strong demand for lodging space.
One of the most compelling inflation scapegoats was airfares, which made a stunning 30% month-on-month leap—the biggest such spike since 2001. ONS attributed this spike to the timing of school holidays, which normally provides a boost to travel patterns and prices. As families across the country look for vacations during these breaks, airlines frequently respond by raising fares.
And perhaps most surprisingly, the fallout from global events on local economies is still in clear view. In the United States, Taylor Swift’s Eros tour last year was partially responsible for an increase in inflation rates. Each ticket for the tour was on average £766, adding to over £1 billion of ticket sales overall. July’s unusually warm weather coincided with the tour’s progression through major cities, further boosting economic activity and spending.
As the latest inflation data paints a complicated picture, the task ahead for the Bank of England (BoE) is becoming increasingly difficult. In light of the stronger inflationary print and the subsequent growth of GDP, the BoE does not have an immediate case to reduce interest rates. The Monetary Policy Committee holds a razor-thin majority of just one vote, highlighting the delicacy of their decision-making process amidst fluctuating economic indicators.
In good news from the labour market, the consecutive three-month drop in unemployment reversed. This change means we’re more likely to see stabilization in employment levels. Outside factors, such as shifts in public holiday schedules, continue to play a role in distorting GDP numbers. Her late Majesty’s funeral resulted in a one-off fall in GDP for that month. The additional bank holiday was a huge factor in this drop.