Key facts
- UK inflation remained above the Bank of England's 2% target rate.
- The Office for National Statistics reported CPI inflation at 2.6% year-on-year in June.
- Core CPI inflation, excluding volatile food and energy, also stood at 2.6%.
- Analysts forecast inflation to increase towards 3% later in the year.
Inflation in the UK has remained stubbornly above the Bank of England's target rate, despite government efforts to address the cost of living crisis. The Office for National Statistics reported that consumer price index (CPI) inflation was 2.6% in the year to June. Core CPI inflation, which excludes volatile food and energy prices, also registered at 2.6%.
Analysts had predicted a slightly lower reading of 2.7%, down from 2.8% in May. The persistent elevated inflation levels highlight the challenges faced by the UK government in bringing price growth down to the Bank of England's 2% target.
Looking ahead, most City analysts and the Bank of England forecast that price growth is likely to edge up again later this year, potentially nearing 3%. This projection comes amidst various policy announcements, including a summer savings package by Rachel Reeves and plans by Andy Burnham to remove VAT from household electricity bills from October, which could marginally reduce inflation.
However, concerns have been raised about the funding of these measures, with Darren Jones criticising the proposal to scrap the digital ID to finance the energy tax cut. Bank of England officials are expected to closely monitor these developments and the impact of external factors, such as disruptions in oil supplies, on inflation. The Bank is widely anticipated to maintain its current interest rate of 3.75% at its upcoming meeting on July 30, while short-term gilt yields suggest markets are pricing in at least two further interest rate hikes to combat high inflation.