LONDON (dpa-AFX) - UK consumer price inflation accelerated unexpectedly in June to the highest since January 2024 largely due to higher transport and food costs but the Bank of England is expected to loosen its policy further, given mounting concerns over economic conditions.
The consumer price index advanced 3.6 percent year-on-year in June, faster than the 3.4 percent rise in May, the Office for National Statistics reported Wednesday. Prices were expected to climb again by 3.4 percent in June.
The 3.6 percent inflation was the highest since January 2024. Moreover, it remains well above the Bank of England's 2 percent target.
Core inflation that excludes prices of energy, food, alcohol, and tobacco rose to 3.7 percent from 3.5 percent a month ago.
Transport, particularly motor fuels, made the largest upward contribution to the annual change, with 1.7 percent rise. Clothing and footwear prices gained 0.5 percent and food and non-alcoholic beverages moved up 4.5 percent, which was the fastest since February 2024.
Moreover, services inflation, a closely watched measure reflecting domestically generated price pressures, remained unchanged at a stubbornly high 4.7 percent.
On a monthly basis, consumer prices rose 0.3 percent, slightly faster than the 0.2 percent increase in May.
In June, the BoE had left its interest rate unchanged at 4.25 percent. The bank had reduced the rate four times since last August.
The BoE had projected inflation to remain around 3.5 percent over the second half of this year before falling back towards the 2 percent target from next year.
Earlier, BoE Governor Andrew Bailey signaled more rate cuts if the job market shows signs of slowing down.
Chancellor Rachel Reeves said there is more to do to put more money into people's pocket.
Although services inflation was driven by regulated or backward-looking categories, it remains uncomfortably high for the BoE, ING economist James Smith said. This suggests that the bank will be reluctant to speed up the pace of rate cuts, though Thursday's jobs data is key, he noted.
If labor market deteriorates further, policymakers have little choice but to move faster, Smith added.
'The Bank of England will need to consider carefully further interest rate cuts before the labour market loosens too much,' British Chambers of Commerce Research Manager Stuart Morrison said.
'While we still expect the Bank of England's Monetary Policy Committee to continue gradually cutting rates, today's upside inflation surprise means its August decision will be finely balanced,' Confederation of British Industry Principal Economist Martin Sartorius said.
Elsewhere, official data showed acceleration in annual house price growth in May. UK average house prices logged a 3.9 percent increase in May, which was up from 3.6 percent in April.
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