U.K. Inflation Surges to 3.6% in June, Exceeding Expectations
The United Kingdom’s annual inflation rate climbed to a higher-than-anticipated 3.6% in June, according to the latest figures from the Office for National Statistics (ONS). This marks an increase from the 3.4% recorded in May, defying economists’ predictions of a 3.4% rate.
Core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, also saw an uptick, rising to 3.7% annually from 3.5% in May. the British pound reacted positively to the news, appreciating by nearly 0.2% against the dollar to reach $1.3406.
Richard Heys, acting chief economist at the ONS, attributed the rise primarily to motor fuel prices, which experienced a smaller decrease in June compared to the critically important drop observed last year. He also noted that food price inflation has risen for the third consecutive month,reaching its highest annual rate since february of the previous year,though it remains below the peak seen in early 2023.
U.K. Finance Minister Rachel Reeves acknowledged the persistent cost of living challenges faced by working people and emphasized the government’s commitment to providing further relief to consumers.
The inflation data is a critical factor for the Bank of England as it navigates interest rate decisions amidst persistent inflation and sluggish economic growth. While central banks typically raise interest rates to curb inflation,the U.K.’s economic contraction, which occurred for the second consecutive month in May, presents a complex scenario for the Bank.
Economists anticipate that the Bank of England may proceed with a 25 basis point rate cut at its upcoming August meeting.Adam Deasy, an economist at pwc, suggested that despite inflation remaining above the target, the contracting economy might led the Bank to overlook the current inflation volatility and implement the rate cut.
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