UK inflation surges to 3.6% in June, exceeding expectations

The UK’s annual inflation rate rose to 3.6 per cent in June 2025, up from 3.4 per cent in May, according to the latest figures from the Office for National Statistics (ONS). This increase was primarily driven by higher motor fuel costs and rising food price inflation, which continued its upward trend for the third consecutive month. Economists had predicted a more modest rise, with many forecasting inflation to remain at 3.4 per cent. The unexpected jump is seen as a result of fuel prices, which didn’t fall as significantly this year compared to the same time in 2024. Additionally, food price inflation reached its highest annual rate since February 2024, although it remains well below the peak levels seen in early 2023.

Core inflation shows steady rise

Excluding volatile items like food, energy, alcohol, and tobacco, core inflation also saw a slight increase. The core consumer prices index (CPI), which focuses on these more stable categories, rose by 3.7 per cent in the year to June, up from 3.5 per cent in May. The rise in core inflation suggests that underlying price pressures are still evident in the UK economy, despite recent efforts by the Bank of England to control inflation through interest rate hikes.

The transport sector, particularly motor fuels, was the largest contributor to the increase in both the Consumer Prices Index (CPI) and the Consumer Prices Index including owner occupiers' housing costs (CPIH). On the other hand, housing costs, including owner occupiers' housing costs, provided a downward push in CPIH, partially offsetting the rise in transport costs.

Bank of England's interest rate strategy faces pressure

In response to the rising inflation, attention is now turning to the Bank of England (BoE) and its interest rate policy. Despite the unexpected inflationary increase, the BoE is still widely expected to reduce interest rates later this summer. This comes after the BoE had already cut rates from 5.25 per cent to 4.25 per cent earlier this year.

Analysts believe that the BoE is likely to proceed with further gradual rate cuts in the coming months, possibly starting in August, to support an economy showing signs of stagnation. The UK’s recent economic contraction in May added pressure on the BoE, with experts warning that a sluggish economy might not respond well to further rate hikes. The Bank has also noted that global uncertainties, particularly the introduction of tariffs by the US, could complicate the inflationary outlook.

Finance Minister Rachel Reeves acknowledged that while inflation remains a concern, the government is working to alleviate the cost of living pressures faced by households. However, opposition figures criticised the government for its handling of inflation, with some warning that it could lead to further financial hardship for families across the country.