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The UK CPI inflation rate for June 2025, which was 3.6%, up 0.2% on May.
On Tuesday, US inflation figures were released showing a 0.3% jump in the annual CPI to 2.7%. The June number had been eagerly awaited by many commentators as the first in which the impact of Trump’s tariffs would start to show.
In the UK, on Wednesday, the Office for National Statistics (ONS) said that CPI inflation for June rose by 0.2% over the previous month, to 3.6%. That was 0.2% above market expectations and takes inflation to its highest level since January 2024. In its last Monetary Policy Summary the Bank of England said it expected CPI to peak at 3.7% in September. That may now be an underestimate.
The UK CPI reading was up 0.3% between May and June, which compares with a 0.1% rise in the corresponding period of 2024. The CPI/RPI gap narrowed by 0.1% to 0.8% with the RPI annual rate rising by 0.1% (to 4.4%). Over the month, the RPI rose 0.4%.
The ONS’s favoured CPIH index also rose by 0.1%, to an annual 4.1%, reducing its historically high margin above the CPI. As we have regularly said in recent months, a large part of that excess is due to the owner occupiers’ housing (OOH) category, which has a 17.1% weighting in the CPIH but is absent from the CPI. The OOH inflation rate dropped 0.3% to 6.4%, 1.6% off its peak January 2025 level and the lowest since March 2024.
The ONS attributed the increased CPIH inflation to:
Main upward drivers
Transport. Overall prices in the transport division rose overall by 1.7% in the 12 months to June 2025, up from 0.7% in the 12 months to May. On a monthly basis, prices rose by 0.7% in June 2025, compared with a fall of 0.2% a year ago.
The rise in the annual rate reflected a large upward effect from motor fuels. The average price of petrol fell by 0.5p per litre between May and June 2025, compared with a larger fall of 3.0p between May and June 2024. Similarly, diesel prices fell by 0.6p per litre in June 2025, compared with a fall of 4.8p in June 2024. These movements resulted in overall motor fuel prices falling by 9.0% in the 12 months to June 2025, compared with a larger fall of 10.9% in the 12 months to May.
There were also upward effects from air fares, rail fares, and maintenance and repair of personal transport equipment.
Clothing and footwear. Overall prices rose by 0.5% in the 12 months to June 2025, compared with a fall of 0.3% in the 12 months to May. The 12-month rate has fluctuated between positive and negative during 2025 and has turned positive again following two consecutive negative readings.
On a monthly basis, prices fell by 0.4% between May and June 2025, compared with a larger fall of 1.2% a year ago. These price movements reflected changes in the proportion of discounted prices which rose between May and June 2025, but by less than between May and June 2024.
The rise in the 12-month rate was the result of small upward effects across a wide range of clothing and footwear.
Food and non-alcoholic beverages. The 12-month inflation rate for food and non-alcoholic beverages was 4.5% in June 2025, the third consecutive increase in the rate. It is now the highest recorded since February 2024 but is well below the peak of early 2023. On a monthly basis, sector prices rose by 0.3%, compared with a rise of 0.2% a year ago.
Main downward driver
Housing and household services. The 12-month inflation rate for housing and household services was 6.7% in June 2025, down from 6.9% in May. On a monthly basis, prices rose by 0.2% in June 2025, compared with a rise of 0.4% a year ago.
The easing in the 12-month rate between May and June 2025 principally reflected a downward effect from owner occupiers' housing (OOH) costs.
Seven of the twelve broad CPI divisions saw annual inflation increase, while four fell and one remained unchanged. The categories with the highest annual inflation rate are led by Housing, water, electricity, gas and other fuels (7.5%) and Education (also 7.5%) and Alcoholic beverages and tobacco (6.4%).
Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) rose 0.2% to 3.7%. Goods inflation rose 0.4% to 2.4%, while services inflation was flat at 4.7%, 0.1% above market expectations.
The ONS has identified problems in the calculation of its Producer Price Inflation indices and, in May, issued a statement that publication of the data would be “paused” for the time being. This remains the case.
Comment
The Bank of England’s next interest rate decision is on 7 August. There has been a growing expectation that the Bank would continue with what looks like a quarterly rate cutting cycle. The combination of today’s inflation numbers (+0.2%), yesterday’s earnings data (5.3% annual growth including bonuses, -0.3% down on the previous reading) and the disappointing May GDP reading (-0.1% after -0.3% in April) leave the Bank in an awkward position. At the June meeting, there was a 6-3 vote for holding rates.
Source: Techlink Professional
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