Price label for £1 for a bowl of produce at a grocery stall at East Street Market, London, UK, in spring 2024.
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According to data released by the National Bureau of Statistics (ONS) on Wednesday, the UK’s annual inflation rate reached 3.6%, higher than expected in June.
Economists voted by Reuters had predicted inflation would reach 3.4% in the 12 months to June, after reaching 3.4%.
June Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, has increased by 3.7% per year from 3.5% in 12 months.
The UK pound rose almost 0.2% against the dollar to $1.3406, following the data release.
“Inflation was etched in June, when motor fuel prices were primarily driven by a slight drop compared to a much larger decline at this point last year,” ONS acting Chief Economist Richard Heys commented on the data.
“Food price inflation has risen to the highest annual rate for the third consecutive month since last February, but is well below the peak seen in early 2023,” he added.
UK Finance Minister Rachel Reeves said the data shows “workers are still struggling with the cost of living” and that the government has more work to do to ease pressure on consumers.
Inflation data is closely monitored as the Bank of England seeks to determine the interest rate trajectory amidst stubbornly high inflation and inactive economic growth.
In an inflationary environment, central banks usually choose to maintain higher key interest rates to encourage more savings and spending to reduce price increases. But the UK’s slow growth environment – the latest data shows that the economy unexpectedly contracted again in May, which is also a concern for the BOE.
So, economists hope that BOE policymakers will cut 25 basis points at their next rally in August.
“Price growth is far above target, but the UK economy, which will be contracted for the second month in a row in May, means that banks are likely to look at the volatility of this inflation reading and move forward with interest rate cuts in August,” PWC economist Adam Deasy commented in an email on Wednesday.
“Tomorrow’s payroll data release is the last major data release before the next MPC meeting, and could potentially help the economy where banks seem to need a lift by involving action.”
