UK inflation unexpectedly rises to 3.6% on food and fuel prices
The annual inflation rate in the UK unexpectedly rose to 3.6% in June from 3.4% in May on higher food and transport costs, in particular fuel where prices fell by less than last year.
The core rate, which excludes volatile food and energy costs, was also higher than expected, climbing to 3.7% from 3.5%, according to the Office for National Statistics.
Richard Heys, acting chief economist at the statistics office, said:
Inflation ticked up in June driven mainly by motor fuel prices which fell only slightly, compared with a much larger decrease at this time last year. Food price inflation has increased for the third consecutive month to its highest annual rate since February of last year. However, it remains well below the peak seen in early 2023.
Key events
The pound has gained since the inflation figures were released, while yields on UK government bonds have also climbed.
The pound is up by 0.2% against the dollar at $1.3410.
In bond markets, the yield (or interest rate) on five-year gilts, as UK government bonds are known, has hit its highest level since 23 June, rising by 3 basis points to 4.074%. The 30-year gilt yield has gained 4bps to 5.498%, the highest since 29 May.
Eurozone bond yields are steady, with the German 10-year yield, Europe’s benchmark, unchanged at 2.71%, close to a four-month high of 2.737% hit on Monday.
The UK inflation figures are “an uncomfortable print for the Bank of England,” said Sanjay Sanjay, Deutsche Bank’s chief UK economist.
Is an August rate cut in jeopardy? No, we don’t think so. There’s enough of a slowdown in GDP and the labour market to warrant a ‘gradual and careful’ easing of monetary policy. But the onus now rests on the labour market to shape how far and how fast the MPC can cut this year and next.
UK inflation hotter, but rate cuts still possible – analyst
Financial markets are still expecting a rate cut at the Bank of England’s next meeting on 7 August, with the probability seen at around 83%.
UK inflation hotter, but rate cuts still possible, said Chris Beauchamp, chief market analyst at IG.
Today’s CPI data spells more pressure for consumers thanks to the surge in food prices, but the overall picture doesn’t quite spell the end for any further rate cuts. Core goods and services inflation was broadly contained, and the focus shifts now to the job numbers tomorrow to see if there are further signs of weakness that might keep the Bank of England on course to ease policy in upcoming meetings.
Last month, the central bank’s monetary policy committee voted six to three to keep rates unchanged at 4.25%, following a quarter-point cut in May. The MPC, which has an inflation target of 2%, has reduced interest rates four times since last summer, but policymakers are divided over how persistent price pressures are.
Isaac Stell, investment manager at the investment service Wealth Club, said:
Higher petrol costs saw headline inflation jump to its highest level since January 2024, bad news for consumers and bad news for those with a hopeful eye on imminent interest rate cuts.
The surprising strength of the inflation figures adds additional issues to the UK’s mounting economic woes. All eyes will turn to the Bank of England who have indicated they are willing to cut rates given the cooling in the jobs market but are unlikely to be able to justify a cut when inflation has started to run hot once again.
In the absence of interest rate cuts, consumers are likely to feel a continued squeeze, unhelpful for the government’s growth agenda which has yet to show signs of life itself. Awful April has rolled into miserable May and in turn rolled into joyless June. The government will now pin its hopes on a Jubilant July.
Food prices rise by 4.5%, fastest since February 2024
Food prices rose at the fastest pace since February last year, by 4.5% in June.
Bread, cereals, and cake, along with meat, and milk, cheese and eggs (mainly cheddar cheese) went up in price. These were partially offset by small downward effects from chocolate products, as well as fruit juice.
Five categories saw inflation in double digits: beef and veal (20.4%), butter (20.0%), chocolate (16.3%), coffee (12.3%), and lamb and goat (10.2%).
Prices fell the fastest for: olive oil (-9.6%), rice (-3.1%), sugar (-2.6%), and frozen seafood (-1.3%).
Balwinder Dhoot, director of sustainability and growth at the Food and Drink Federation, said:
Food and drink inflation has risen once again in June, continuing a concerning trend in 2025. Food and drink inflation has consistently outpaced the overall rate of inflation throughout the year, and seen sharp increase in the past 12 months. It was 1.5% in June 2024, up to 4.5% last month, and we expect inflation to rise further this year.
The pressure on food and drink manufacturers continues to build. With many key ingredients like chocolate, butter, coffee, beef, and lamb, climbing in price – alongside high energy and labour expenses – these rising costs are gradually making their way into the prices shoppers pay at the tills.
The government’s new food strategy is an opportunity to create a more resilient food system. This should include looking again at the costs and regulations facing food and drink manufacturers in order to address creeping price inflation.
Rise in inflation is another blow to Rachel Reeves
The rise in inflation comes as Labour faces intense scrutiny over its economic management after two months of negative growth and with speculation mounting over tax rises.
Rachel Reeves sought last night to shrug off Britain’s anaemic growth performance at her Mansion House speech, telling City bankers she would slash red tape to help reboot the economy.
The UK’s annual inflation rate has risen this year after dramatic increases in water bills, energy costs and council tax – complicating the Bank of England’s approach to cutting interest rates.
Transport prices rose by 1.7% in the 12 months to June, up from 0.7% in May.
This was because the average price of petrol fell by 0.5 pence a litre between May and June, compared with a larger fall of 3p a litre this time last year. The average price stood at 131.9p a litre, down from 145.8p a year earlier.
Similarly, diesel prices fell by 0.6p a litre in June, compared with a fall of 4.8p a litre a year earlier. The average price was 138.5p a litre, down from 151.5p a year earlier. These movements resulted in overall motor fuel prices falling by 9% in the 12 months to June, compared with a larger fall of 10.9% in May.
Air fares rose by 7.9% between May and June 2025, compared with a rise of 3.2% a year earlier. Fares usually rise in June, but the increase this year was the largest June rise since 2018. The upward effect came from long-haul and European routes.
UK inflation unexpectedly rises to 3.6% on food and fuel prices
The annual inflation rate in the UK unexpectedly rose to 3.6% in June from 3.4% in May on higher food and transport costs, in particular fuel where prices fell by less than last year.
The core rate, which excludes volatile food and energy costs, was also higher than expected, climbing to 3.7% from 3.5%, according to the Office for National Statistics.
Richard Heys, acting chief economist at the statistics office, said:
Inflation ticked up in June driven mainly by motor fuel prices which fell only slightly, compared with a much larger decrease at this time last year. Food price inflation has increased for the third consecutive month to its highest annual rate since February of last year. However, it remains well below the peak seen in early 2023.
Tread carefully with reform of bank ringfencing, writes our financial editor Nils Pratley.
Rachel Reeves called it “the biggest set of reforms to financial regulation in a decade”, and, in one narrow sense, her Leeds Reforms would qualify for the description.
If the ringfencing regime for banks were to be scrapped, we really would be entering a new era – or going back to an old one, since the separation of banks’ retail and investment banking activities was the single biggest regulatory change introduced after the 2008-09 crash to try to prevent another blow-up.
Reeves on Tuesday, however, merely announced a review to look at how reforms to ringfencing could “strike the right balance between growth and stability, including protecting consumer deposits”. One hopes that does not mean outright abolition, which is what banks such as HSBC, Lloyds and NatWest have been urging on the grounds that the rules trap capital and impede growth.
The stout defence of ringfencing from Andrew Bailey, governor of the Bank of England, has always felt more compelling: the regime has made banks safer and removal would increase the cost of loans and mortgages. It would surely be hard for a chancellor to override the Bank on this core question, especially when Barclays – which, in theory, might have most to gain from abolition as it has the largest investment bank – is also in the defence camp.
A fudged outcome would see more activities allowed within the ringfenced entity. It is technical stuff, but also deeply important. Get it wrong and the cautious voices sounding the alarm over a government in search of a sugar-rush of growth via financial deregulation would have a point. Tread carefully, chancellor: ditching ringfencing in its entirety risks unlearning the lessons of the last crisis.
In other respects, however, Reeves’s red tape-slashing, investment-boosting, obstacle-removing reforms can be criticised in the other direction: yes, some changes are sensible tidying-up exercises but others are underwhelming.
Investec’s UK economist Ellie Henderson said:
We expect inflation to have held steady at 3.4% in June, matching the Bank of England’s forecast made at the time of the May Monetary Policy Report. We also predict the core measure to have remained unchanged at 3.5%.
One part of inflation that has not trended lower as of late is food price inflation. The warmer weather has been blamed for rising food costs, with evidence such as from the BRC shop price inflation measure suggesting it will be an upward influence on the June numbers too.
This is likely to spill over into restaurant prices too, and the rise in employers’ national insurance contributions will not be helping limit price pressures in this sector, along with wider recreation, either. What has been welcomed however is the downtrend in rental inflation, a factor helping overall services inflation move lower.
Looking forward, she said:
Looking further ahead we expect more disinflationary pressure to present itself in the data over the remainder of the year. A continual loosening in labour market conditions amidst uninspiring economic growth should, by lowering wage pressures, weigh on services inflation, while our base case is that the recent spike in food price inflation is a temporary phenomenon.
Introduction: Official data expected to show UK inflation remained stable in June
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s UK inflation day! Economists are expecting the headline annual rate to have stayed at 3.4% last month, as rising food prices counter the impact from slower price rises for services. Discounting for clothes could be another factor – especially if the summer sales started earlier than usual.
Having spiked in April, inflation eased back in May, albeit only slightly, to 3.4% as measured by the annual change in the consumer prices index (CPI), which tracks the prices of a basket of goods and services each month.
The Office for National Statistics releases the data for June at 7am BST. The core rate of inflation, which strips out food and energy (which tend to be volatile) and is closely watched by the Bank of England, is forecast to have stayed at 3.5%.
Julien Lafargue, chief market strategist at Barclays Private Bank, said:
The market expects UK inflation to have stayed relatively stable in June at 3.4% year-on-year. This would reflect a small uptick in food prices offset by a deceleration in services inflation and still declining energy costs.
Given the weaker-than-expected GDP print in May, it would require a meaningful upside surprise in UK inflation for the Bank of England not to lower interest rates in August.
Morgan Stanley’s chief UK economist Bruna Skarica is also forecasting a 3.4% rate. She explains:
Food inflation | An express train: UK food inflation seems to be accelerating. The rise in May was concentrated, and thus initially not that concerning to us. But the British Retail Consortium is now suggesting an express pass-through of the recent hot weather to fruit and vegetable prices. It is peculiar we are not yet seeing a similar dynamic in the euro area food prices, where perhaps margins, competition or volumes all result in a softer pass-through of wholesale costs to retail prices.
Core goods | On sale….but when? Summer sales normally start towards the end of June, so an earlier index day might mean a bit firmer clothing prices. Still, we see anecdotal evidence of front-loaded sales, which intuitively makes sense to us, considering the likely front-loading in purchases of summer clothing on mild spring weather in April and May.
By contrast, inflation in the United States shot up in June as the impact of Donald Trump’s trade tariffs started to show in US prices. Annual inflation rose to 2.7% in June, up from 2.4% in May, data showed yesterday.
Last night, Rachel Reeves claimed that rules and red tape are acting as a “boot on the neck” of businesses and risk “choking off” innovation across the UK without bold reforms.
In a speech to City bosses attending the Mansion House dinner at London’s Guildhall on Tuesday evening, the chancellor heaped further pressure on regulators to allow for more risk in order to boost economic growth.
“It is clear that we must do more,” Reeves said. “In too many areas, regulation still acts as a boot on the neck of businesses, choking off the enterprise and innovation that is the lifeblood of growth.
The Agenda
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9.30am BST: UK House prices for June
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10am BST: Eurozone trade for May
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1.30pm BST: US Producer prices for June
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2.15pm BST: US Industrial production for June
