UK Inflation rises unexpectedly, pressuring Bank of England

UK inflation rose to 3.6% in June, the highest since January 2024, driven by rising grocery prices following the Labour government’s budget. The increase surpassed economists’ and the Bank of England’s (BOE) expectations of a steady 3.4%, complicating the BOE’s plans to cut interest rates.

Despite BOE Governor Andrew Bailey signalling further rate cuts, the surprise inflation rise — especially in services (4.7%) and food (4.4%) — raises doubts. Retailers blamed higher payroll taxes and poor harvests for pushing up prices.

While the BOE still expects inflation to ease later in the year and return to its 2% target by early 2027, persistent domestic price pressures remain a concern. Traders now predict 49 basis points of rate cuts by year-end, down from 53 before the data.

The pound rose 0.2% to $1.3414, ending an eight-day losing streak.