The annual inflation rate in the U.K. climbed to a higher-than-anticipated 3.6% in June, as reported by the Office for National Statistics (ONS) on Wednesday.
Reuters-polled economists had forecasted inflation to rise to 3.4% for the twelve months leading to June, following the 3.4% mark in May.
Core inflation in June, excluding the more volatile categories such as energy, food, alcohol, and tobacco, increased by an annual rate of 3.7%, up from 3.5% in the year to May.
In response to the data release, the British pound appreciated by nearly 0.2% against the dollar, reaching $1.3406.
“The uptick in inflation in June was mainly driven by motor fuel prices, which fell only slightly compared to a significantly larger drop at the same time last year,” commented Richard Heys, acting chief economist at ONS.
“Food price inflation has risen for the third consecutive month, reaching its highest annual rate since February of last year. However, it is still well below the peak seen in early 2023,” he noted.
U.K. Finance Minister Rachel Reeves remarked that the data indicates “working people continue to struggle with the cost of living,” emphasizing that the government must do more to alleviate the pressure on consumers.
The Bank of England will be monitoring the inflation data closely as it assesses the path for interest rates amid the persistently high inflation and weak economic growth.
In periods of inflation, central banks typically opt for higher interest rates to encourage saving over spending, aiming to slow price increases. However, the U.K.'s low-growth situation—recent data revealed an unexpected economic contraction in May—poses a challenge for the BOE.
As a result, economists predict that BOE policymakers will lower rates by 25 basis points at their upcoming meeting in August.
“While price growth remains significantly above target, the U.K. economy contracting for a second consecutive month in May suggests the Bank might overlook the volatility in this inflation reading and proceed with a rate cut in August,” Adam Deasy, an economist at PwC, commented on Wednesday via email.
“Tomorrow’s payroll data release, the last major data release before the next MPC meeting, could prompt the Bank to act in support of an economy that increasingly appears to need a boost.”
