Rising fuel and food costs behind surprise UK inflation rise to 3.6%

Good morning and welcome to The Independent’s live business blog, where today we’re focusing on inflation figures for June as well as reaction to Rachel Reeves’ speech last night, stock market news and more.

The chancellor is right to woo the City – she can’t risk alienating them when she needs their support, writes James Moore.

But he’s not convinced her plan to win them over will work...

As a reminder and a look back, it was air fares and fuel which fell last month, but food was increasing at the highest rate in 12 months, with household goods also increasing in price.

That resulted in a 3.4 per cent inflation rate for May.

A month earlier the CPI figure was 3.5 per cent, which was later revised to 3.4 per cent due to errors in some figures regarding vehicles.

So, we’re expected to flatline again in terms of inflation for June - it could even tick up to 3.5 per cent again.

Looking deeper into the numbers, Barclays analysts expect the same 3.4 per cent - but for food to carry on rising.

“Headline CPI inflation should remain at 3.4% in June, unchanged from May, with a deceleration of services price growth driving an easing in core CPI. We expect an acceleration of food price inflation but core goods and services to undershoot the BoE's expectations,” wrote analysts in a note.

Rachel Reeves has unveiled a package of reforms to the UK’s financial system set to be the biggest in a decade, aimed at delivering economic growth and spurring on retail investing.

Changes include reforming the bank ring-fencing regime and reducing burdensome regulation in the City in order to reintroduce “informed risk-taking” into the financial system, the Government said.

The Chancellor said the “Leeds reforms”, unveiled in the West Yorkshire city, “represent the widest set of reforms to financial services for more than a decade”.

New measures are intended to help drive increased levels of investment among both financial firms and individuals.

More here from Anna Wise at PA:

Continuing inflation is an issue for all, but growing inflation is a real problem to which businesses tend to react to worst - as a result of higher interest rates.

Charlie Ambler, co-chief investment officer at Saltus explained: “Another uptick in inflation would be frustrating, but not wholly unexpected. The Bank of England has already signalled that services inflation and energy price pressures would keep the headline rate sticky for some time. If CPI does climb again, markets are unlikely to take it well, particularly as hopes for an August rate cut start to look more ambitious.

“From an investor perspective, this continues to be a challenging environment to navigate. The UK economy is clearly cooling, contracting 0.1% in May, which further limit the Bank’s room for manoeuvre. But the longer rates stay restrictive, the greater the drag on confidence, especially among entrepreneurs and business owners - who are often the first to pull back from risk in uncertain times.”

The figures are in and they are higher than expected - CPI is in at 3.6 per cent for June.

Official ONS figures show transport, particularly motor fuels, making the largest upward contribution to the monthly change.

Housing and household services made “a large, partially offsetting”, downward contribution.

Food and fuel continue to contribute significantly to the overall figure, with alcohol and tobacco also increasing notably last month.

Commenting on today’s inflation figures for June, ONS acting chief economist Richard Heys said:

“Inflation ticked up in June driven mainly by motor fuel prices which fell only slightly, compared with a much larger decrease at this time last year.

“Food price inflation has increased for the third consecutive month to its highest annual rate since February of last year. However, it remains well below the peak seen in early 2023.”

Chancellor Rachel Reeves has reacted to the latest inflation figures by saying much the same as last month: pointing to minimum wage increases and a couple of other money-saving ventures to keep money in pockets.

There’s more to do though, she said. “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.”

In contrast, Mel Stride MP, shadow chancellor of the exchequer, blamed Labour’s choices for borrowing as being behind the continued high inflation levels.

“This morning’s news that inflation remains well above the 2 per cent target is deeply worrying for families,” he said.

“Labour’s decision to tax jobs and ramp up borrowing is killing growth and stoking inflation – making every day essentials more expensive – and because Labour are too weak to take tough choices on spending, more tax rises are on the way, leaving families facing ever-rising costs.

“Only the Conservatives will break this cycle by taking the responsible approach and backing the makers - the people who work hard, create wealth and jobs, and fund public services.”