The June increase was driven chiefly by persistent pressure on transport and food prices. Petrol and diesel fell less than usual for the time of year, while air fares posted their sharpest June rise since 2018. Combined, these factors contributed around 0.10 percentage points to the overall inflation figure. Food and non-alcoholic drink prices rose by 4.5 % year-on-year — their third monthly increase in a row — with cheddar cheese, meat, and bread among the biggest contributors. This food price pressure was linked to poor spring harvests and higher import costs following adverse weather in both the UK and Europe.
Clothing and footwear added a modest but broad-based lift as retailers began summer discounting earlier than last year, resulting in fewer markdowns in June. In contrast, housing and household services costs provided the main offsetting drag, as owner-occupier housing costs eased from earlier highs.
Underlying trends included firmer global energy prices, partly due to Middle East supply risks and new US tariff uncertainties, which limited the usual summer drop in fuel prices. In addition, the effects of April’s minimum wage increases and regulated tariff adjustments for energy and water continued to filter through, particularly impacting labour-intensive services sectors.
Market reaction was swift. Sterling initially gained against the US dollar but later gave up ground as investors reassessed the likelihood of a near-term interest rate cut. UK two-year government bond yields rose by around six basis points to 3.94 % in early trading. Economists surveyed by Reuters now expect inflation to peak slightly earlier — likely July or August — and only marginally higher at around 3.7 %.
The Bank of England, which last month indicated it would move “gradually” on rate cuts unless inflation surprised to the upside, now faces a more finely balanced decision at its August meeting. Chancellor Rachel Reeves, speaking at Mansion House, emphasised the government’s commitment to “growth-friendly regulation,” while Bank officials signalled a continued focus on services inflation and wage trends.
For context, UK inflation remains above comparable figures for France (0.8 %) and Germany (2.0 %) in June, underlining the persistence of domestic cost pressures. Upcoming milestones for policymakers and markets include the 7 August Bank of England meeting and the next inflation data release on 20 August. Analysts will also be watching the autumn Ofgem energy price cap review, which could trim headline inflation by around 0.2 percentage points from October.
