Inflation has risen unexpectedly, highlighting the ongoing squeeze on household budgets at a time when the chancellor is under pressure to balance public finances.
According to the Office for National Statistics (ONS), the annual rate of inflation climbed to 3.6% in the 12 months to June, up from 3.4% in May. This marks the fastest pace since January last year, and contrasts with economists’ expectations that the rate would remain unchanged.
ONS acting chief economist Richard Heys noted that the uptick was driven largely by motor fuel prices, which saw only a slight fall compared to a much sharper decrease during the same period last year. He added that food price inflation has also increased for the third consecutive month, reaching its highest annual rate since February 2024, although it remains below the peaks experienced in early 2023.
A significant factor in the rise in food prices has been the cost of meat, especially beef, which has surged by over 30% in the past year, based on figures from the Association of Independent Meat Suppliers shared by FarmingUK. Higher production costs and strong global demand have been cited as the main reasons behind this increase.
Kris Hamer, director of insight at the British Retail Consortium, explained that although inflation overall has risen steadily over the past year, food inflation has been particularly severe. He pointed to the lingering impact of the last budget and poor harvests caused by extreme weather, which have driven up prices despite strong competition among retailers.
There are suggestions that recent tax rises imposed on employers by chancellor Rachel Reeves earlier this year have contributed to inflationary pressures. Balwinder Dhoot, director of sustainability and growth at the Food and Drink Federation, warned that the pressure on food and drink manufacturers is mounting. Rising costs of key ingredients such as chocolate, butter, coffee, beef, and lamb, combined with high energy and labour expenses, are gradually being passed on to consumers.
Responding to the figures, Rachel Reeves acknowledged the ongoing challenges faced by working people. She highlighted measures already taken by the government, including increasing the national minimum wage for three million workers, introducing free breakfast clubs in every primary school, and extending the £3 bus fare cap. Reeves added: “But there is more to do and I’m determined we deliver on our Plan for Change to put more money into people’s pockets.”
The wider ONS data serves as a stark reminder of the continued strain on living standards that many households have felt since the pandemic and the subsequent energy crisis. Record rental prices and higher borrowing costs, partly driven by the Bank of England’s efforts to control inflation, have added to the burden.
Many families are still grappling with the effects of previous high energy bills, and the cost of gas and electricity remains a key driver keeping overall price growth above the Bank’s preferred level. Furthermore, April saw inflation-busting increases in essential household bills, including council tax and water rates, further adding to financial pressures.
The latest inflation figures come just ahead of new employment data and the Bank of England’s next interest rate decision on 7 August. Most market analysts and many economists expect a small cut in the base rate, likely bringing it down by a quarter point to 4%.
This expectation is largely built on signs of a cooling labour market and weaker economic growth—two challenges for the chancellor, who faces the difficult task of supporting economic growth while managing tight public finances.
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