UK inflation rises by more than expected and may slow down rate cuts

Key Points

• UK inflation climbed to an annual 3.6% rate in June, the highest since January 2024, driven mainly by rising food, fuel and transport costs.
• The unexpected uptick may prompt the Bank of England to slow the pace of future interest rate cuts as policymakers react to stickier inflation.
• Despite inflation running above the BoE’s 2% target, most economists still anticipate a rate cut on August 7, citing weak economic growth dampening price pressures.
• Since August last year, the BoE has reduced its policy rate from a 16-year high of 5.25% to the current 4.25%, implementing quarter-point cuts every three months.

LONDON (AP) — UK inflation rose to a near 18-month high in June as food prices surged for the third month running, official figures showed Wednesday. Economists said the unexpected increase could prompt the Bank of England to lower interest rates slower than currently anticipated.

The Office for National Statistics said consumer prices rose by an annual rate of 3.6% in June, up from 3.4% in May. That was the highest rate since January 2024.

The statistics agency said higher food prices was largely behind the increase. Fuel and transport costs also contributed.

Though inflation remains way above the Bank of England's target rate of 2%, most economists think the central bank will opt to cut interest rates again at its next meeting on Aug. 7 as sluggish economic growth is anticipated to weigh on prices over the coming year or two.

Since its first quarter-point rate cut last August from the 16-year high of 5.25%, the Bank of England has played it steady, reducing interest rates every three months to the current 4.25%.

However, some economists believe the higher inflation rate may cause some jitters among rate-setters, which could see the bank delay further reductions.

“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,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.