UK inflation unexpectedly rose to 3.6% in June, driven by fuel and food prices, according to official figures from the Office for National Statistics. The increase, which exceeded the Bank of England's and City economists' forecasts of 3.4%, highlights the ongoing cost of living pressures facing Chancellor Rachel Reeves.
The rise was largely attributed to petrol and diesel prices falling less sharply than a year earlier, alongside a third consecutive monthly increase in food price inflation, which reached 4.5%—the highest since February 2024. The cost of cakes, meat, milk, eggs, and cheddar cheese contributed to the food price rise.
The data comes as Labour faces scrutiny over its economic management, with two months of negative growth and speculation over tax rises. Critics point to the chancellor's maiden budget, which included a £25bn increase in employment taxes, warning it could force job cuts and higher prices. Some analysts note early signs of businesses passing on higher employment costs to consumers, particularly in restaurant meals, hotel stays, and supermarket groceries.
Shadow chancellor Mel Stride said: “Labour’s decision to tax jobs and ramp up borrowing is killing growth and stoking inflation – making everyday essentials more expensive.” In response, Reeves acknowledged there was “more to do” to ease the cost of living, citing increases to the national minimum wage, free breakfast clubs, and an extended bus fare cap.
The Bank of England, which has cut interest rates four times in the past year to 4.25%, now faces potential delays to further reductions as inflation remains above its 2% target. Services inflation held steady at 4.7% in June, driven by the largest June increase in air fares since 2018, while the headline rate is forecast to peak at 3.7% in September.
