Why Taylor Swift might shape the future of UK interest rates

Taylor Swift may give rate-setters at the Bank of England something extra to think about as they mull when to start cutting interest rates.

June’s inflation figures will be published on Wednesday, with economists expecting the headline rate to remain at two per cent. However, analysts are concerned that the megastar’s Eras tour may slow progress on services inflation.

“Taylor Swift may have stalled services disinflation,” economists at Capital Economics said, with her playing a series of shows at Wembley in June, with more to come in August.

Services inflation includes price increases in a wide variety of sectors, such as restaurants, hotels and entertainment. Policymakers at the Bank see it as a more accurate gauge of domestic inflationary pressures than the headline rate, which is heavily impacted by global economic factors.

May’s figures showed that services inflation only fell to 5.7 per cent, nearly twice the level consistent with inflation remaining sustainably at two per cent. Some economists think that figure won’t budge in June partly due to “Swift effects”.

For example, there have already been reports of the price of hotel rooms tripling for the nights when Taylor Swift is performing.

Analysts at BNP Paribas said they expected to see a “swift uptick in services pressures” in June while Rob Wood at Pantheon Macroeconomics also pointed to the likely increase in spending around Swift’s concerts.

“Whoever it is who’s filling a stadium with 80,000 people is going to fill up a hotel,” he told Bloomberg.

The Bank will try to look through any Swift effects, but stubborn services prices will likely remain a concern. Services inflation has remained surprisingly persistent over the past few months with worries growing that the Bank might have to leave interest rates on hold until September.

Last week, Huw Pill, the Bank’s chief economist, pointed to the continued strength of services inflation as a growing upside risk to his inflationary outlook.

“It is hard to dispute the case that inflation persistence in the UK continues to prove – well – persistent,” he said.

Policymakers will also be paying close attention to the latest labour market figures, which will be released on Thursday. Like services inflation, wage growth has remained uncomfortably strong for policymakers.

Economists expect annual wage growth to ease off slightly, falling to 5.7 per cent, but this would still be nearly twice the level consistent with inflation remaining at two per cent.

This week’s batch of figures will be the last before the Bank’s next interest rate decision, due on 1 August.

Although the Bank left rates on hold in June, minutes from the meeting showed that the decision was “finely balanced” suggesting a cut in August is very much on the table. Markets think there is a roughly 50 per cent chance of an August cut.