The UK Office for National Statistics reported today that the Consumer Prices Index (CPI) rose by 3.6% in the 12 months to June 2025, up from 3.4% in the 12 months to May. Expectations had been for the rate to remain unchanged.
Core CPI (CPI excluding energy, food, alcohol, and tobacco) rose by 3.7% in the 12 months to June 2025, up from 3.5% in the 12 months to May. The CPI goods annual rate rose from 2.0% to 2.4%, while the CPI services annual rate was unchanged at 4.7%.
The Bank of England last cut rates in May and then held steady in June. At the June meeting, six voting members of the Monetary Policy Committee (MPC) voted against changing rates, while three voted to lower rates by 25 basis points to 4.0%.
As the CPI arrives hotter than expected, it dims the prospects for a cut in August, making one wonder if the MPC had been too quick in its previous cuts. In the most recent cycle, the MPC first cut rates in August 2024 to 5% from 5.25% in a 5-4 vote.
Paul Noble, CEO of Chetwood Bank, said the increase in inflation was further bad news for the Chancellor, as this follows the report that the economy was shrinking.
“The best-laid plans of Number 11 still aren’t bearing fruit, and while I was relieved to see the U-turn on cutting the cash ISA tax-free allowance, it’s not likely last night’s Mansion House speech will have lifted the public’s spirits,” said Noble. “While there is no clear path to fix our predicament, the prospect of further pinching and hiking from the chancellor is making people up and down the country wince. The cost of living continues to spiral, and nothing that is being done seems to make a difference.”