Inflation Surprise Increase to 3.6% pa

The Office for National Statistics (ONS) has this morning released UK inflation figures for June 2025.

After last month’s 0.1% fall from 3.5% pa to 3.4% pa (ONS figures).  This was not a surprise to consumers who have seen price rises as businesses increase prices to combat the huge employer national insurance contribution increases and minimum wage increases for employees below age 21, getting minimum wage increases in a year of between 16% and 18% and over 2 years, staggering increases of nearly 43%.  Even for over 21s, minimum wages have increased by over 33% in 2 years. These increases started in April, so we suggest the impact will be sustained for a period.

It was perhaps a ‘kick in the teeth’ for Chancellor Rachel Reeves after the economy showed signs of slowing down as GDP shrunk for the second consecutive month.

Inflation is climbing again, and we can see no respite given US tariffs loom for most of the world, so globally prices are rising.

Falls

Miscellaneous goods and services, housing and household services, and restaurants and hotels were the only sectors where prices fell.

Rises

Transport, clothing and footwear, recreation and culture, alcohol and tobacco, communication, furniture and household goods, and food and non-alcoholic beverages prices all climbed.

RPI Climbs 0.1% pa to 4.4% pa

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) and still our preferred measure of real inflation and is still at late 2023/early 2024 figures.  We cannot see this improving in the short term.

Comment

The Bank of England now has a dilemma.  The economy is slowing down; unemployment is up but prices are rising.  The next interest rate decision by the Bank of England is going to be a gamble either way.  The economy needs a rate cut but prices are rising.  We called the rate cut 3 months ago and suggested no more rate cuts until the end of the summer i.e., September but any decision forecast is now unclear as we suggest it will be a gamble whether the Bank holds or cuts rates.

Key dates for us all:

• Next Bank of England MPC interest rate decision 7 August 2025
• Next ONS inflation report 20 August 2025.