UK inflation rises further to 3.6%

UK inflation rose in June to 3.6%, latest Consumer Price Index (CPI) data from the Office of National Statistics, and follows a previous rise in May’s data.

The increase in inflation has been driven principally by a slowdown in price falls for motor fuel and the third consecutive month of food price rises. Other factors contributing to the rise in inflation include rising rail and air fares and an increase in clothing prices.

The latest rise in inflation has once again outpaced expectations of economists, although it remains below the 3.7% peak anticipated by the Bank of England, with price rises to slow down again towards the 2% target rate in the Autumn.

This latest increase in inflation brings the CPI to its highest rate in 18 months, and indicate businesses may be starting to pass on increases in wage costs to consumers, including higher rates of the minimum wage and employer National Insurance contributions that took effect from April. Increases also mean the UK has the highest inflation rate of comparable economies in Europe, with inflation at 2% in June in Germany, and a 2.2% EU-wide average.

Despite the faster than expected rise in inflation in recent months, economists are broadly skeptical that the Bank of England will change its course regarding interest rates, Instead, the Bank of England is likely to cut rates again in August to aim to ensure businesses have cheaper access to credit to support growth and investment.