BBCPrices in the UK rose by 3.6% in the 12 months to June, driven by increases in the cost of food and fuel.
It means inflation remains above the Bank of England’s 2% target.
The Bank moves interest rates up and down to try to keep inflation at that level, and has cut interest rates four times since August 2024.
What is inflation?
Inflation is the increase in the price of something over time.
For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.
How is the UK’s inflation rate measured?
The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).
This virtual “basket of goods” is regularly updated to reflect shopping trends, with virtual reality headsets and yoga mats added in 2025, and local newspaper adverts removed.
The Bank also considers other measures such as “core inflation” when deciding whether and how to change rates.
It doesn’t include food or energy prices because they tend to be very volatile, so can be a better indication of longer term trends.
Core CPI rose by 3.7% up from 3.5% in the year to May.
Why are prices still rising?
Inflation has fallen significantly since hitting 11.1% in October 2022, which was the highest rate for 40 years.
But that doesn’t mean prices are falling – just that they are rising less quickly.
Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.
It then remained well above the 2% target partly because of higher food prices.
These continue to be a significant factor in the current inflation figures. In the year to June 2025, food prices rose by 4.5%.
Industry experts said this reflected higher costs for key ingredients such as chocolate, butter, coffee and meat, as well as increased energy and labour costs.
In addition, fuel prices fell only slightly between May and June 2025, compared to a larger drop in the same period in 2024.
Why does putting up interest rates help to lower inflation?
When inflation was well above its 2% target, the Bank of England increased interest rates to 5.25%, a 16-year high.
The idea is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged to save more.
In turn, this reduces demand for goods and slows price rises.
But it is a balancing act – increasing borrowing costs risks harming the economy.
For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.
Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.
What is happening to UK interest rates and when will they go down again?
The Bank of England cut rates in August and November 2024, and again in February and May 2025, taking rates to 4.25%.
It held rates in June, but at the time Bank of England governor Andrew Bailey indicated that further “gradual and careful” cuts could follow, perhaps as early as the summer.
Despite the increase in inflation in June, most analysts still expect the Bank to cut rates at its next meeting on 7 August.
Earlier in July, Mr Bailey said the Bank was prepared to make larger interest rate cuts if the job market showed signs of slowing down.
He told the Times that although he still believed rates were on a downward path, caution was necessary while inflation remains above target.
He has repeatedly warned that the introduction of US tariffs has shown “how unpredictable the global economy can be”.
The Bank now expects the tariffs to slow the UK economy and lead to lower inflation than expected.
It had previously said it thought inflation would spike at 3.7% between July and September 2025 before dropping back towards the end of 2027.
Are wages keeping up with inflation?
Annual average regular earnings growth was 5.5% for the public sector and 4.9% for the private sector.
Meanwhile, separate ONS figures showed the number of vacancies fell again to 727,000 for the April to June period, marking three continuous years of falling job openings.
The unemployment rate also increased to 4.7% in the three months to May, from 4.6% in three months to April.
This marked the highest level of unemployment since June 2021, and is likely to factor into the Bank of England’s decision whether to cut rates.
What is happening to inflation and interest rates in Europe and the US?
The US and EU countries have also been trying to limit price increases.
The inflation rate for countries using the euro was 1.9% in May, down from 2.2% in April and March 2025.
In June 2024, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 3.75%, the first fall in five years.
In June 2025, after several further cuts, its key rate stood at 2%.
Inflation in the US fell to 2.7% in June, which was up from 2.4% the previous month. It remains above the US central bank’s 2% target.
After a string of cuts in the latter part of 2024, the US central bank again chose not to change rates at its July 2025 meeting, the fifth hold in a row.
That leaves its key interest rate unchanged in a range of 4.25% to 4.5%.
The Federal Reserve has repeatedly come under attack from President Trump, who wants to see further interest rate cuts.
