HSBC, the High Street banking giant, has forecasted that Labour’s plans to increase the minimum wage could result in long-term higher interest rates. On a separate note, City experts have speculated that Taylor Swift’s 10 UK concerts in June may have marginally pushed up inflation due to increased hotel and ticket prices.
Economists at HSBC suggest that pay rises are maintaining higher prices and inflation than would otherwise be expected. Consequently, they propose that the Monetary Policy Committee (MPC) of the Bank of England will maintain a higher base interest rate.
The MPC is facing pressure to reduce the base rate from its current 16-year high of 5.25 percent. Many analysts anticipated a cut in June, then August, but HSBC now suggests any reduction might be postponed until November. Current money market indicators suggest there is only a 50 percent chance of a rate cut when MPC policymakers convene next month.
HSBC economist Liz Martins said in a client note: “The upcoming decisions are likely to be ‘finely balanced’. We see wage growth and inflation remaining sticky, particularly if Labour’s plans include another sizeable hike to the National Living Wage in April 2025.”
Separately, some economists believe the Bank’s MPC will need to consider a temporary price surge caused by Taylor Swift’s tour. Paul Dales, the chief UK economist at Capital Economics, shared with Bloomberg: “I’ve been quite cautious when it comes to cultural services inflation and also restaurants and hotels inflation. I’ve popped in a little bit of upside from what might be some kind of Taylor Swift effect.”
Interestingly, last month, statisticians in Sweden attributed an unexpected boost in core inflation for the first time in over a year to the arrival of Swift. A similar effect was blamed on Beyonce’s tour in the country the previous year. Robert Wood, the chief UK economist at Pantheon Macroeconomics, has raised his accommodation price inflation prediction to a 0.4 percent month-on-month gain, citing live music events, including Swift’s tour.
