Why has inflation risen unexpectedly and what does it mean for households?
Official data showed Consumer Prices Index (CPI) inflation rose to 3.6% in June, up from 3.4% in May and the highest since January 2024.
The rise was unexpected, with inflation forecast by most economists to remain at 3.4% last month.
Here the PA news agency looks at what is behind the latest increase and what it means for households and the economy:
– What is inflation?
Inflation is the term used to describe the rising price of goods and services.
The inflation rate refers to how quickly prices are going up.
June's inflation rate of 3.6% means that if an item cost £100 a year ago, it would now cost £103.60.
– What drove the latest increase?
Food prices and transport costs were largely behind the latest increase in CPI, according to the Office for National Statistics (ONS).
It said annual food price inflation hit the highest level since February 2024 – at 4.5% including non-alcoholic drinks.
This marked the third month in a row of rising food price inflation, which is unwelcome news for households.
But the ONS said it was still 'well below the peak seen in early 2023', when food price inflation reached an eye-watering 19.2%.
Within transport costs, the ONS said air fares soared by 7.9% between May and June, marking the biggest rise for seven years.
Rail fares also rose month-on-month, having fallen a year earlier, while fuel prices fell only slightly last month compared with a larger fall a year ago.
The average price of petrol fell by 0.5 pence a litre during June, compared with a a drop of 3 pence a litre between May and June 2024.
– Where will inflation go from here?
Economists expect inflation to continue edging up over the next few months before peaking in September.
Lower energy bills are then set to help start bringing inflation back down heading into 2026 thanks to recent falls in Ofgem's price cap.
However, Matt Swannell, chief economic adviser to the EY Item Club said stubborn inflation in the services sector would mean 'the fall in inflation is likely to be gradual'.
– What does it mean for interest rates?
The latest inflation figures are a headache for the Bank of England, given that it brings CPI further away from its 2% target.
Policymakers are still widely expected to cut rates again next month, from 4.25% to 4%, given a slowing wider economy, though it is likely to see the Bank move cautiously with any future rises, according to experts.
The figures come after gross domestic product (GDP) shrank by 0.1% in May, following a 0.3% fall in April and leading to fears of a contraction overall in the third quarter.
Jobs figures on Thursday are expected to show a further slowdown in wage growth, which may also help smooth the path for a rate cut.
Bank governor Andrew Bailey said in an interview with The Times newspaper earlier this week that rates could be cut further if the jobs market slows down, saying 'I really do believe the path is downward'.
Mr Swannell said there 'doesn't seem to be enough in these inflation numbers to derail an interest rate cut in August'.
'The MPC has lowered Bank Rate at alternate meetings since its rate cutting cycle began last summer, and the committee voiced growing concerns about the weakening state of the labour market at last month's meeting as it held rates, so a 25 basis point rate cut at the August meeting has appeared likely for some time,' he added.
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