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Why has inflation stayed the same and what is the ‘Taylor Swift effect’?

Some economists have suggested that the ‘Taylor Swift effect’ prompted hotels and restaurants to raise their prices by more than usual in June.

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Inflation in the UK stayed at 2% last month, new official figures showed.

It means it matched the target rate set by the Government and the Bank of England for the second month running.

Here, the PA news agency looks at what the latest inflation data means for households and the economy.

– What is inflation?

Inflation is the term used to describe the price of goods and services rising.

A line graph showing the inflation rate
(PA Graphics)

June’s inflation rate of 2% means that if an item cost £100 a year ago, the same thing would now cost £102.

It is unchanged from the inflation rate recorded in May, meaning that prices are increasing at the same pace as they were the month before.

– Does it mean prices have stopped getting higher?

No, prices across the country are still rising, just at a much slower rate than they were before.

But the Government does not want prices to fall. It sets the Bank of England, the UK’s central bank, a target to keep the inflation rate at 2%.

It says this is the ideal level to help people and businesses plan their spending, and keeps price rises low and stable.

A man holding a shopping basket full of food in a supermarket
Some food prices fell last month, such as fish, milk, cheese and eggs (PA)

Yes, some items have been going down in price. Clothing and footwear prices fell in June compared with May, with sales in shops helping drive down costs. Some food prices also fell last month, such as fish, milk, cheese and eggs. Electricity prices have also dropped sharply from a year ago.

However, other things have been getting more expensive. In particular, restaurant and hotels prices jumped by 6.2% in June, with the cost of a hotel room jumping by nearly 9%.

Package holiday prices also surged last month, while cinema, theatre and concert prices continued to rise.

– Is it true that Taylor Swift’s tour was behind this?

Some economists have suggested that the “Taylor Swift effect” prompted hotels and restaurants to raise their prices by more than usual during the month.

Sanjay Raja, chief UK economist for Deutsche Bank, said it is “certainly very possible that some Taylor Swift effects were at play” in relation to the “staggering” jump in overnight hotel prices.

Laura Suter, director of personal finance at AJ Bell, said: “Bank of England policymakers may be cursing Taylor Swift, as fans spending on hotel rooms and in restaurants during her Eras tour is likely to be one reason that prices rose in June, meaning that overall inflation flatlined at 2% rather than fell.”

However, due to the date that the ONS collects its data – in this case, on or around June 11 – it is hard to determine how big an impact individual events have on the monthly data.

– Does inflation hitting its target mean that the Bank of England can lower interest rates?

The Bank of England uses interest rates as a tool to help control inflation.

Rates are currently at 5.25%, having been held at the level since August last year.

The fact that the inflation rate hit its target for two months in a row will be good news for policymakers at the Bank.

A line graph showing UK interest rates
(PA Graphics)

In particular, services inflation – which looks only at services-related categories such as hospitality, culture and housing – remained higher than expectations last month.

Ms Suter said: “This sticky element of inflation is of big concern to the Bank and even a small drop in the right direction would have given more confidence that now is the right time for interest rate cuts.”

Luke Bartholomew, deputy chief economist for Abrdn, said the Bank’s next decision in August sits on a “knife edge” following the latest inflation data.

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