Introduction to UK Inflation
UK inflation is expected to have risen again when fresh data for June 2025 is released by the Office for National Statistics (ONS). According to the latest FactSet consensus, the UK’s core consumer prices index (CPI) is forecast to have risen by 3.5% over the 12 months to the end of June—0.1% higher than May’s 3.4% figure for the previous 12-month period.
Key Takeaways
The key points to consider are:
- Markets expect UK inflation to have risen by 0.1% in June 2025.
- The data will be the latest indication of how tariffs, energy price rises, and taxation are affecting the UK economy.
- The Bank of England has said it will hold rates for as long as is required to bring inflation down.
Expected Impact on the UK Economy
The expected rise in inflation will come as unwelcome news for the Chancellor, Rachel Reeves, who is due to address City grandees with news of significant financial services and savings policy reforms in a speech at Mansion House. It will also inform the Bank of England’s next move when its Monetary Policy Committee (MPC) next meets on August 6. UK interest rates are still set at 4.25% following a rate hold by the central bank in June.
Factors Contributing to Inflation
The development also comes as commentators and analysts monitor the ongoing market and economic fallout from the imposition of tariffs by the US government on its global trading partners, including the UK. New GDP data for May suggests the UK economy underperformed for a second month. Some are still sanguine about the situation, however. According to Morningstar senior analyst Michael Field, “Yes, inflation is high in the UK, and a bump year-over-year to 3.5% would put us out of sight of the BoE’s 2% target.”
The Bank of England’s Prediction
The Bank of England has repeatedly warned that UK inflation could rise, after core CPI briefly hit its 2% target in May last year. It cited price increases meted out by energy companies and services vendors in April this year, as well as the effect of the government’s own increase to National Insurance employer contributions, which many businesses passed on to consumers via higher prices, for the ongoing battle to get inflation back down towards its 2% target.
Market Reaction
UK equity markets are unlikely to react particularly positively to the data. If the data comes in higher than expected, there will almost certainly be a negative reaction, as investors once more react to the growing sense that the UK economy is struggling under the weight of domestic price increases and geopolitical pressure. Next week’s inflation data will be closely watched by the UK’s bond investors, who are already on high alert amid concern over the Chancellor’s plans for UK public spending.
Conclusion
In conclusion, the expected rise in UK inflation will have significant implications for the UK economy, including potential tax rises and interest rate changes. The Bank of England’s prediction of rising inflation and the market’s reaction to the data will be closely watched by investors and analysts. As the UK economy continues to struggle with domestic price increases and geopolitical pressure, it remains to be seen how the government and the Bank of England will respond to the challenges ahead.
