UK inflation hits highest level in nearly three years

UK inflation hit its highest level in June since August 2018 as food and transport costs rose, putting pressure on the Bank of England to raise interest rates.

Figures from the Office for National Statistics showed consumer price inflation increased to 2.5% from 2.1% in May, hitting its highest level in nearly three years and coming in above the BoE's 2% target for the second month in a row. It was also above consensus expectations of 2.2%.

The ONS said prices for food, second-hand cars, clothing and footwear, eating and drinking out, and motor fuel rose in 2021 but mostly fell in 2020, resulting in the largest upward contributions to the change in the 12-month inflation rate between May and June 2021.

Core inflation - which strips out food, energy, alcohol and tobacco - came in at 2.3% in June compared to 2.0% the month before.

ONS deputy national statistician for Economic Statistics Jonathan Athow said: "The rise was widespread, for example coming from price increases for food and for second-hand cars where there are reports of increased demand.

"Some of the increase is from temporary effects, for example rising fuel prices which continue to increase inflation, but much of this is due to prices recovering from lows earlier in the pandemic. An increase in prices for clothing and footwear, compared with the normal seasonal pattern of summer sales, also added to the upward pressure this month."

Paul Dales, chief UK economist at Capital Economics, said the jump in CPI inflation "was a surprise to us even though we have been forecasting that inflation would rise to a peak of 4.0% around the turn of the year".

"That said, we think this surge in inflation will be temporary, which means the Bank of England won’t tighten policy in response."