UK inflation surges to 3.6% in June, defying expectations and pressuring bank of England
Britain's annual consumer price inflation (CPI) unexpectedly climbed to 3.6% in June, its highest level in over a year, according to official figures released on Wednesday by the Office for National Statistics (ONS).
The rise from 3.4% in May surprised economists, who had widely predicted the rate to remain flat. Instead, June’s figures marked the fastest annual increase since January 2024 and signal that inflation remains stubbornly above the Bank of England's 2% target, News.Az reports, citing Reuters.
The ONS attributed the jump primarily to rising transport costs, with motor fuels making the largest contribution to the month-on-month acceleration in prices.
The news prompted a modest strengthening of the British pound against the U.S. dollar, as investors recalibrated their expectations for the Bank of England’s next policy move. The central bank is due to meet in August, and the fresh inflation data could dampen the likelihood of an interest rate cut.
The recent upward trend in inflation comes after a low of 1.7% in September 2024, and continues to defy expectations of a return to price stability. In May, the BoE projected inflation would peak at 3.7% in September, nearly double its official target.
April already saw a significant spike to 3.5%, driven by increased regulated energy and water tariffs, air fares, and the cost of services following hikes in employment taxes and the minimum wage.
Despite these pressures, BoE Governor Andrew Bailey has maintained that interest rates are on a “gradual downward path,” citing a weakening labour market and slowing wage growth. The BoE has already cut rates four times in the past year, each by 0.25 percentage points, with economists forecasting two more cuts by the end of 2025.
However, some central bank policymakers remain cautious. Persistent skills mismatches and supply constraints in the UK labour market could keep wage growth too strong for inflation to return to target soon.
Notably, services inflation — a key metric watched by the BoE as a measure of domestic price pressures — remained at 4.7% in June, defying expectations of a drop to 4.6%.
The Bank's most recent forecasts suggest inflation may not fall back to the 2% target until the first quarter of 2027, prolonging the pressure on households and complicating economic policy decisions ahead of the next general election.
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