Fresh headache for Rachel Reeves as inflation jumps to 18-month high
UK inflation rose to a near 18-month high in June as food prices surged for the third month running, according to official figures.
The increase was unexpected, with most economists forecasting inflation to remain unchanged at 3.4%.
The ONS said annual food price inflation hit the highest level since February 2024, while transport costs also pushed up the cost of living, as air fares saw the largest monthly rise in price for seven years.
ONS acting chief economist Richard Heys 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.
(Image: Joe Giddens/PA Wire)
'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.'
Chancellor Rachel Reeves said there was 'more to do' to help bring inflation down.
She said: 'I know working people are still struggling with the cost of living.'
'There is more to do and I'm determined we deliver on our plan for change to put more money into people's pockets,' she added.
The surprise increase in inflation will be watched closely by the Bank of England ahead of its next interest rate decision in August.
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Policymakers are widely expected to cut rates again next month, from 4.25% to 4%, given a slowing wider economy, but the latest unexpected rise in inflation may see the Bank tread cautiously further out, according to experts.
Suren Thiru, economics director at Institute of Chartered Accountants in England and Wales (ICAEW), said: 'June's uptick is the start of a slight summer surge in inflation with skyrocketing business costs and global trade turbulence likely to lift the headline rate moderately higher by the autumn, despite July's drop in energy bills.
'While June's hot inflation won't deter policymakers from sanctioning an August policy loosening, given mounting worries over economic conditions, these figures may increase caution over the pace of future rate cuts.'
The figures come after gross domestic product (GDP) shrank by 0.1% in May, following a 0.3% fall in April and leading to fears of a contraction overall in the third quarter.
Jobs figures on Thursday are expected to show a further slowdown in wage growth, which may help smooth the path for a rate cut.
Adam Deasy, economist at PwC, said: 'While price growth remains far above target, the UK economy contracting for a second straight month in May means the Bank is likely to look through the volatility in this inflation reading and proceed with a rate cut in August.
'Tomorrow's payroll data release, the last major data release before the next Monetary Policy Committee meeting, may spark the Bank into action to support an economy that increasingly looks like it needs a lift.'
The ONS data showed food and non-alcoholic drink price inflation lifted to 4.5% in June, up from 4.4% in May.
Within transport costs, the ONS said air fares soared by 7.9% between May and June, marking the biggest rise since 2018.
Rail fares also rose month-on-month, having fallen a year earlier, while fuel prices fell only slightly last month compared with a larger fall a year ago.
The average price of petrol fell by 0.5 pence a litre during June, compared with a a drop of 3 pence a litre between May and June 2024.
Elsewhere, the data showed the ONS's preferred measure of inflation, Consumer Prices Index including owner occupiers' housing (CPIH), lifted to 4.1% last month from 4% in May.
Meanwhile, the Retail Prices Index (RPI) rate of inflation rose to 4.4% in June from 4.3% in May.
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