- Britain's annual rate of consumer price inflation unexpectedly rose to its highest in over a year at 3.6% in June 2025, official figures showed on Wednesday, June 17, 2025, slightly dampening expectations for further cuts in Bank of England (BoE) interest rates. June's reading from the Office for National Statistics took the annual CPI rate to its highest since January 2024, against expectations from economists in a Reuters poll for it to remain unchanged at May's reading of 3.4%.
- British inflation has risen steadily since touching a three-year low of 1.7% last September, and in May 2025, the BoE forecast it would peak at 3.7% in September 2025 - almost twice the central bank's 2% target. Following the release of the data, the Sterling rose slightly against the dollar, five-year gilt yields hit a one-month high and financial markets priced in slightly lower chances of a quarter-point BoE rate cut in August and another later in the year.
- Food and non-alcoholic drink prices were 4.5% higher than a year earlier, the biggest rise since February 2024. Previously, April brought a particularly sharp jump in inflation to 3.5% from 2.6% due to rises in regulated energy and water tariffs, a spike in air fares, and upward pressure on the cost of labour-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 labour 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 2024 and economists polled by Reuters last month forecast two more quarter-point rate cuts this year, including a likely move in August 2025. However, some BoE policymakers are concerned that skills mismatches in Britain's labour market and other supply constraints will keep wage growth running too fast for inflation to return to target any time soon.
(Source: Reuters)