The latest official data has shown that inflation rose to 3.6% in June, casting doubt on the prospect of potential interest rate cuts by the Bank of England.
According to the Office for National Statistics (ONS), price growth remains significantly above the Bank's 2% target rate, as revealed in the most recent data prior to the next monetary policy decision in August.
The ONS also reported that services inflation reached 4.7% in the year to June. A Bloomberg poll of economists had forecast inflation to hit 3.4% during the same period, as reported by .
This marks the third consecutive month that inflation has exceeded the 3% mark, posing a challenge to Bank of England rate-setters considering cuts.
Richard Heys, acting chief economist at the ONS, attributed the increase in inflation to rising motor fuel prices and food inflation.
Chancellor Rachel Reeves stated: "I know working people are still struggling with the cost of living.
"That is why we have already taken action by increasing the national minimum wage for three million workers, rolling out free breakfast clubs in every primary school and extending the £3 bus far cap. 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 initial surge in inflation in April was largely due to price increases following Rachel Reeves' higher taxes, which included a hike in employers' national insurance contributions (NICs), an increase in the national minimum wage, and skyrocketing utility bills.
Consumers may witness prices creeping up further this summer before they gradually decrease, as per forecasters.
Despite some economists expressing reservations, markets are of the belief that rate-setters will vote for a cut.
The Bank of England's most recent forecast projected that inflation could escalate to 3.7 per cent in September before slowly dropping to two per cent over the course of a year.
Ruth Gregory from Capital Economics stated that the unexpected inflation rise would "add to the pressure on the Bank to continue to cut rates at a gradual pace".
"With the jobs market stuttering, wage growth weakening and the PMIs pointing to services inflation ending the year at just 3.0%, this may not be enough to cause the Bank to deviate from its quarterly rate cutting path," Gregory said.
"But we think that CPI inflation will rise a bit further in the coming months, and the risk is that this increase proves more persistent and rates are cut more slowly than we expect, or not as far."
Bank of England officials might be more worried about forthcoming labour market data published by the ONS.
Economists are anticipating that official figures will revise down the number of individuals pushed out of work in May from 109,000 to about 50,000.
The job statistics may prove to be a thorny issue for rate-setters, which includes Bank of England Governor Andrew Bailey who has signalled concerns over a "softening" in the labour market and emerging "slack".
In the previous meeting concerning interest rates, only three members of the Monetary Policy Committee (MPC) – Swati Dhingra, Alan Taylor and deputy governor Jon Cunliffe – supported a 25 basis point reduction.
Attention is now turning to chief economist Huw Pill's forthcoming decision after he broke ranks with the majority in May, arguing to maintain interest rates on the grounds that they had been lowered "too fast", contributing to higher inflation.
Whilst the Bank of England has reiterated its stance that interest rate cuts are likely in future gatherings, it has also cautioned that the º£½ÇÊÓƵ is not committed to a fixed course towards reduced borrowing costs owing to persistent inflation.
Analysts from Pantheon Macroeconomics suggest the Bank might enact just one further reduction over the next year, meanwhile Capital Economics foresees a potential drop in rates to three percent by the end of 2026.
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