UK inflation holds steady at Bank of England's 2% target, above expectations

U.K. inflation held steady at the Bank of England's 2% target in June, Official National Statistics data showed Wednesday.

The headline reading came in above analyst expectations at 1.9%, according to economists polled by Reuters, and was in line with the previous 2% reading in May.

Sterling rose slightly shortly after the release, trading at $1.2977 by 7:21 a.m. London time.

Services inflation — which is closely watched by the BOE, given its dominance within the U.K. economy and its reflection of domestically-generated price rises — remained at 5.7% in June.

Core inflation, excluding energy, food, alcohol and tobacco, was 3.5%, also on par with the 3.5% recorded in May.

Higher restaurant and hotel prices were the largest contributors to upward pressure, while clothing and footwear costs posted the biggest declines, the ONS said.

Consumers are increasing their spending on leisure activities over the summer months, including on cultural experiences and concerts as high-profile artists such as Taylor Swift, Bruce Springsteen, Pink and Sting tour the country.

Investors have been eyeing a potential August interest rate cut, as headline inflation showed signs of sustained easing. Market expectations of such a trim waned just after the release of the latest print.

Jane Foley, head of FX strategy at Rabobank, said that the stubbornness of services inflation could invite caution from BOE policymakers ahead of their meeting next month.

"It's really not a done deal for August," she told CNBC's "Squawk Box Europe" on Wednesday.

"I think many of the members of the policy committee, and a lot of economists will be looking at that services sector inflation and worrying a bit," she added.

Jonathan Haskel, a member of the BOE's Monetary Policy