Trending 
Britain’s annual consumer price inflation unexpectedly climbed to a 17-month high of 3.6% in June, official figures revealed. This increase, up from 3.4% in May, defied economists expectations that it would hold steady.
The new inflation rate, the highest since January 2024, could complicate the Bank of England’s decision on whether to cut interest rates at its upcoming meeting in August.
Inflation in the UK has been on a steady rise since hitting a three-year low of 1.7% last September. The Bank of England had previously forecast that inflation would peak at 3.7% in September, nearly double its 2% target. Following the announcement, the pound saw a slight gain against the dollar.
“While we still expect the Bank of England’s Monetary Policy Committee to continue gradually cutting rates, today’s upside inflation surprise means its August decision will be finely balanced,” Martin Sartorius, principal economist at the Confederation of British Industry, said.
The increase in Britain’s inflation rate from May to June was primarily driven by higher costs for motor fuels, airfares, and rail fares. The Office for National Statistics (ONS) also noted that clothing, shoes, red wine, and lager became more expensive.
This follows a significant inflation jump in April, which was caused by rising regulated energy and water tariffs, higher airfares, and increased labour costs due to a rise in employment taxes and the minimum wage.
Despite the recent inflation increase, Bank of England (BoE) Governor Andrew Bailey has suggested that interest rates will likely continue to fall gradually. He expects that a weaker job market will reduce wage growth and that the economic outlook will remain sluggish.
The BoE has already made four quarter-point interest rate cuts since last August, and economists had projected two more this year, with one expected in August. However, some BoE policymakers are concerned that labour market skill gaps and other supply issues could keep wage growth too high for inflation to return to its target anytime soon.
The rate of service price inflation, a key indicator for the BoE, remained steady at 4.7% in June, contrary to forecasts of a slight drop. Additionally, food and non-alcoholic drink prices rose by 4.5% over the past year, the largest increase since February 2024. The BoE projects that headline inflation will return to its target by the first quarter of 2027.
