CPI inflation rose to 3.6% in June, up from 3.4% in May, the latest ONS figures show.
Core inflation came in at 3.7% in the 12 months to June, up from the 3.5% in May but lower than forecast.
Although the Bank of England had expected inflation to rise this year, peaking at 3.7%, industry experts believe today's figure may cause the Bank's Monetary Policy Committee to delay further interest rate cuts.
"It’s now a barrier to cutting interest rates"
Richard Pike, chief sales and marketing officer at Phoebus, commented: “Today’s rise in inflation will be a setback for those hoping to see interest rates come down this summer. With the Bank of England’s 2% target slipping further out of reach, policymakers are likely to remain cautious."
Ian Stewart, chief economist at Deloitte, said: “Britain’s inflation rate has more than doubled since last September and is running well above levels in the US and the euro area. Higher inflation puts an August interest rate cut in jeopardy. Inflation is expected to fall back towards the end of this year, but in the meantime the pressure on the Bank of England will be to keep interest rates higher for longer.”
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, agreed: “On balance, today’s data have added to the Bank of England’s policy conundrum. While economic activity is slowing and employment conditions are softening, rising near-term price pressures suggest that a continuation of the cautious and gradual approach to rate-setting might be the most prudent course of action. A rate cut in August may now be in doubt.”
Peter Stimson, director of mortgages at MPowered, added: “The intake of breath at the Bank of England will have been audible. Such a big jump in CPI isn’t just a blow for the Bank’s ratecutting plans, it’s a punch to the solar plexus.
“Inflation like this can no longer be dismissed as a blip. It’s now a barrier to cutting interest rates.
“The Bank’s Governor has spent weeks hinting that a Base Rate cut in August was all but a done deal.
“But that certainty has evaporated in the face of today’s inflation data. CPI is not far off double the Bank’s 2% target, and core CPI is climbing too - confirming that the problem isn’t just the product of temporary factors like the spike in oil prices seen following America’s air strikes on Iran.
“Several members of the Bank’s ratesetting Monetary Policy Committee had sounded unconvinced that the time is right to cut the Base Rate to give the stagnant economy the boost it needs.
“Britain’s inflationary relapse will crystallise that view, and when the MPC meets in three weeks’ time it’s likely several members will vote to hold off on a rate cut.
“While the weakness of the economy means the Bank will be keen to resume rate cuts in coming months, the likelihood of an August cut has plunged from near certain to barely 50/50.
"A cut in August is still likely to be on the cards"
However others believe that a rate cut is still possible at next month's MPC meeting.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: "The Bank was already expecting a rise, just perhaps a slightly smaller one. The fact that oil price rises are behind the change, rather than something closer to home, is likely to cool concerns about inflation sticking around – especially given the spike in oil prices was relatively short-lived. It’s only if this passes through to higher prices more generally that it will hit the radar of the rate setters. A cut in August is still likely to be on the cards, with the chances of a cut falling very slightly, but still looking incredibly likely. Belief in a cut may well strengthen again if tomorrow’s employment data continues to show unemployment rising and wage increases slowing."
Ben Allkins, head of mortgages and protection at Just Mortgages, commented: “The question on everyone’s lips is what impact this jump in inflation will have on the MPC meeting next month. While it has risen and further pressures are likely to push inflation higher throughout the year, disappointing GDP figures for a second successive month and a weak labour market are still likely to deliver the rate cut that is widely expected in August."
Paresh Raja, CEO of Market Financial Solutions, said: “With just over three weeks until the Bank of England’s next base rate decision, this morning’s inflation data feels like it has added significance. The headlines will likely be negative, and the focus from many will be on the fact that inflation is both rising slightly and still above the central bank's 2% target, but that shouldn’t rule out a base rate cut on 7th August.
“The Bank of England's Governor, Andrew Bailey, recently commented that he would consider lowering the base rate if the labour market continues to soften. And yet, his accompanying caution about cutting rates while inflation remains above 2% continues to frustrate many in the property market. That target now feels like more than a guideline – it’s starting to carry disproportionate and potentially harmful weight.
“The Bank has cut rates while inflation was above target in the past. This moment should be no different. Economic growth has stagnated for two consecutive months, so it feels like the right time to stop fixating on short-term CPI trends and start prioritising policies that support recovery. In turn, by cutting the base rate, the Bank would give property buyers and investors the confidence they need to resume their investment plans and encourage greater activity across the property market – and across the wider economy – in the final five months of the year.”
Chris Beauchamp, chief market analyst at IG, added: "Today’s CPI data spells more pressure for consumers thanks to the surge in food prices, but the overall picture doesn’t quite spell the end for any further rate cuts. Core goods and services inflation was broadly contained, and the focus shifts now to the job numbers tomorrow to see if there are further signs of weakness that might keep the BoE on course to ease policy in upcoming meetings."
