UK CPI Inflation Unexpectedly Rises to 3.6% in June

British inflation has risen steadily since touching a three-year low of 1.7% last September, and in May the Bank of England forecast it would peak at 3.7% in September - almost twice the central bank's 2% target.

June's reading from the Office for National Statistics took the annual CPI rate to its highest since January 2024.

Higher transport costs, especially motor fuels, were the biggest contributor to the rise in the inflation rate between May and June, the ONS said.

Sterling rose slightly against the dollar after the data, which may put pressure on the BoE not to cut interest rates at its next meeting in August.

Previously, April brought a particularly sharp jump in inflation to 3.5% due to rises in regulated energy and water tariffs, a spike in air fares, and upward pressure on the cost of labor-intensive services from a rise in employment taxes and the minimum wage.

Despite this, Governor Andrew Bailey has said interest rates are likely to remain on a gradual downward path, as a weaker labor market puts downward pressure on wage growth and the outlook for economic growth remains lacklustre.

The BoE has cut interest rates by four quarter-point steps since August and economists polled by Reuters last month forecast two more quarter-point rate cuts this year.

However, some BoE policymakers are concerned that skills mismatches in Britain's labor market and other supply constraints will keep wage growth running too fast for inflation to return to target any time soon.

Services price inflation, a measure the BoE views as a better guide to domestically generated price pressures than the headline CPI rate, held at 4.7% in June, in contrast to economists' forecasts for it to fall to 4.6%.

The BoE's forecast in May that inflation would be back on target in the first quarter of 2027.