Inflation jumps more than expected - as food and fuel prices add pressure

FTSE 100 records worst day since April

If US inflation figures had come in lower than expected yesterday, we could have had a new record closing high for the FTSE 100.

It was tantalisingly close to achieving that after climbing to above 9,000 points for the first time during the first half of Tuesday's trading day.

But then we got that important economic data out of the United States.

It showed that inflation estimates for June were bang on and a headline figure of 2.7% - up from 2.4% in May - cemented fears that higher costs from US trade tariffs were now finally filtering through the world's largest economy.

The instigator of the global trade war, Donald Trump, predictably kept up pressure for an interest rate cut by the Federal Reserve despite the jump in inflation.

While the figures reignited worries about US growth, they were also seen as denting interest rate cut expectations at the same time.

Stock markets widely fell back from record levels on both sides of the Atlantic.

The FTSE 100 had its worst day since April and began trading flat this morning at 8,938.

Quarterly results from many major US banks later today are eagerly awaited for direction on investor sentiment.

Weak numbers and gloomy commentary could see further gloss come off US stock markets.

Inflation rise 'hammer blow' for households and 'warning shot' for economy

While some experts are still anticipating the Bank of England to cut interest rates next month, others have warned that today's inflation data could mean rates could stay higher for longer. 

When the Bank rate is high, it tends to mean the amount we are charged to borrow increases, which can be bad news for those with credit card debt, variable rate mortgages and home buyers. 

It also means that we can earn more on our savings, if the interest rates we are being offered beat inflation. 

Mortgage broker Ranald Mitchell, director at Charwin Mortgages, said the 3.6% inflation rate is a "hammer blow for households and a warning shot for the economy".

"It shatters hopes of imminent rate cuts, leaves mortgage borrowers exposed, and offers little relief to savers still losing out in real terms. Without urgent action, this will only get worse." 

Money blog regular and associate director at L&C Mortgages, David Hollingworth said the Bank may still see "enough reason to look through today's figures to reduce rates in the August meeting".

"The recent tone has been consistent in its suggestion that interest rates should continue to fall but it's been harder to be sure when those cuts may come, when data doesn't follow the expected path," he said. 

But he warned that today's news could take a "bit of momentum" out of the recent reductions we have seen in mortgage rates. 

Businesses may be passing more of their costs onto customers, says economist

In the details of today's inflation data is a sign that businesses might be handing more of their bill rises to customers, an economist has said. 

Ruth Gregory, deputy chief UK economist at Capital Economics said a rise in hotel, clothing and food price inflation could show that companies are passing on increases in National Insurance contributions and the national minimum wage in their selling prices. 

She said these unexpected price growth rises could be a potential concern for the Bank of England, which will make a decision on interest rates next month. 

"The unexpected rise in CPI inflation from 3.4% in May to 3.6% in June may not prevent the Bank of England from cutting interest rates by 25 basis points in August. But it will add to the pressure on the Bank to continue to cut rates at a gradual pace," she said. 

"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." 

How does UK inflation compares to the G7

The UK has the highest rate of inflation in the G7.

Canada, the US, France, Italy and Germany all recorded inflation rates lower than 3.6% in June. 

We are still waiting for Japan's latest data, which is why it's not included in the table below, but in May, prices rose at a rate of 3.5%. 

We've also included the inflation rate in the eurozone - the countries that use the euro -  for comparison. 

It recorded inflation at 2% last month. 

Government is making 'everyday essentials more expensive', says shadow chancellor

Shadow Chancellor Mel Stride has said the government has made "everyday essentials more expensive" following this morning's inflation data. 

He said the 3.6% figure was "deeply worrying" for families, who are facing "ever-rising costs". 

"Labour's decision to tax jobs and ramp up borrowing is killing growth and stoking inflation – making everyday 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," he wrote on X. 

What caused inflation to rise?

Transport, particularly motor fuels, played the biggest role in pushing up inflation last month, according to the Office for National Statistics. 

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." 

The rate of inflation was offset by slower house prices, but the ONS noted that there were "no large offsetting downward contributions in June". 

Food price inflation increased for the third consecutive month to its highest annual rate since February last year. 

But Heys said it still remains "well below the peak seen in early 2023". 

'I know working people are still struggling'

Chancellor Rachel Reeves has said there's "more to do" to help bring inflation down after the latest data showed it had risen by more than expected. 

"I know working people are still struggling with the cost of living," she said. 

"There is more to do and I'm determined we deliver on our Plan for Change to put more money into people's pockets." 

Forecasters expect inflation to rise further - but an interest rate cut is still on the cards

Inflation is rising, yet the Bank of England is poised to cut interest rates. It's not the policy response you would expect but the economy is not behaving as we would like.

Inflation this month jumped higher on the back of rising food and fuel prices. A brief spike in the oil price initiated by the conflict between Israel and Iran caused motor fuels to jump.

Meanwhile, higher employment costs and poor harvests caused food prices to jump.

The trend is upward. The pressure on food prices could keep inflation ticking higher this summer. Energy prices have fallen but geopolitical uncertainty risks another oil spike. The Bank of England sees the headline rate hitting around 3.75% later this year.

Yet, policymakers are confident that inflation will then fall. A flagging economy and a weakening jobs market should start to bring down price pressure. It means the Bank of England is still likely to cut interest rates when it meets on 6 August.

Policymakers at the Bank are contemplating another question: The economy is stagnating. So, why are interest rates at 4.25%?

That will be welcome news to a chancellor who is hoping it will cause consumers to spend some of the savings which they have been building up.

It could also give her some reprieve on the interest bill on UK government debt, which at around £100bn annually, is eating up about 8% of the budget.

Policymakers are confident inflation will fall throughout 2026 but the latest figures contained a warning.

Services inflation, a key indicator of underlying inflation in the economy, remained stubborn at 4.7%, even though forecasters thought it would come down. 

The services sector is the country's major employer and, unlike goods, prices here are less susceptible to global factors and more closely linked with wages. The latest figures show there is still some heat fuelling domestic price pressures.

Inflation jumps by more than expected

Inflation rose to a near 18-month high to 3.6% in June, according to data from the Office for National Statistics. 

The increase was unexpected, with most economists forecasting it to remain unchanged at 3.4%.

The ONS said annual food price inflation hit the highest level since February 2024, while transport costs also pushed up the cost of living. 

The Bank of England will be closely watching this morning's data, along with what's happening in the job market, as it looks at whether to reduce interest rates next month. 

Latest inflation data at 7am - here's a reminder of what it tells us

We will be getting the latest inflation data at 7am, but before we do. here's a quick reminder of what it is and why you should care about it... 

Basically, inflation is the rate at which prices are rising.

It stands at 3.4%, with experts expecting it to remain around that level today.

Inflation directly affects our overall cost of living and, if wages are not increasing at the same pace, the value of your money decreases.

It is affected by lots of different factors, including global conflicts - with the Ukraine war having a huge impact on food and gas prices. Some argue Brexit has also had a negative effect.

In the UK, inflation is measured monthly - comparing how much prices are going up with the same time a year before.

The headline inflation figure, which you'll see a lot in the news, measures price rises across a range of products that we need in our daily lives.

The most commonly used inflation index is the Consumer Price Index - and the target for many Western governments is 2%.

One thing to note is that falling inflation doesn't mean prices are coming down - just that they're rising less quickly. You'd need a minus figure, or negative inflation, to see prices fall overall.

Why does inflation affect interest rates?

The Bank of England raises interest rates to try to slow spending and encourage saving - when this happens, prices/inflation tend to come down.

When inflation falls, interest rates tend to.

Potential winners and losers from high inflation

Overall, a high and volatile rate of inflation is widely considered to be damaging for the economy - but there are some people who could benefit from it.

Workers with wage bargaining power (perhaps those who belong to strong trade unions) can come off better as they can protect their incomes by bidding for higher wages.

Producers could end up benefiting if their prices rise quicker than their costs.

People with stocks or property could also see the value of their assets rise if there is a sustained period of price inflation.

However, retired people on fixed incomes are likely to be worse off as inflation cuts the real value of their pensions and other savings.

The poorest will also feel the pinch more as costs of borrowing, food and domestic utilities are high.

UK ranked joint top location for investment, survey finds - with appetite for risk growing

The UK is rated as the joint top location for investment alongside India, according to professional services company Deloitte.

Its quarterly survey of chief financial officers has also found that finance leaders' appetite for risk has increased.

Almost a fifth - 17% - said they believed it is a good time to allow greater risks onto their balance sheets.

Deloitte also said that British corporates are moving away from defensive strategies for the first time in a year.

Chief financial officers expect inflation to drop to 2.9% by the middle of next year.

They also expect the Bank of England to lower the base rate of interest to 3.75% in the next 12 months, down from the current 4.25%.

Geopolitical risks to business, such as the conflicts in Ukraine and the Middle East, remain a concern, the research also found.

M&S posts online job adverts for first time since cyber attack

M&S has started posting job openings on its careers website for the first time in months.

It comes after the online adverts were paused in May following a cyber attack.

While there are no in-store positions being advertised, a senior buyer role and a social media lead are among the roles listed.

Vacant store staff positions were filled through walk-in recruitment days over the past month while the online portal was paused.

Three teenagers and a 20-year-old woman were arrested in connection with the cyber attacks last week, which also hit Co-op and Harrods.

The hacks forced M&S to suspend online orders for six weeks, costing the business £300m.

Government accused of 'giving up' on thousands of mothers paid too little by state pension

The government's failure to track down thousands of mothers paid too little by the state pension could end up saving it £1bn.

Due to administrative errors that go as far back as 1978, many women who claimed child benefit miss out on National Insurance top-ups.

The Department for Work and Pensions annual report for 2024/25 has found the failure to find the women and rectify the error could be saving the government up to £1bn.

The DWP began writing to women last year, but it has now admitted it may not be able to track down all those affected.

'Dismal failure is hammer blow for more than 100,000 women'

"DWP's latest report is a hammer blow to over 100,000 mothers who are receiving reduced state pensions because of errors on their NI record," Steve Webb, partner at pension consultant LCP, said.

"The government's letter-writing campaign has been a dismal failure and this was entirely predictable given its reliance on a complicated online claims process," he added. 

Webb said that the figures in the annual report are an admission that the government doesn't expect these efforts to have much impact.

"In effect, the government has all but given up on these mothers and this is totally unacceptable," he added. 

"It is time for a fresh campaign of direct mail to the women potentially affected, this time making it much easier for women to apply and supported by a fresh publicity blitz."

DWP 'determined to help'

A spokesman for DWP said: "We are determined to help people who have been left out of pocket as a result of historical errors which are no fault of their own.  

"That's why we wrote directly to over 370,000 of those who were potentially affected and launched an online tool to help people check if they needed to claim.

"We carried out an extensive campaign to raise awareness of the issue and will continue regular communications to get people to check their National Insurance record."

Cost of 'essential purchases' for long journeys could add up to hundreds of pounds, parents warned

Parents are spending significant amounts of money on gadgets to make long summer car journeys more entertaining for their children, research has found.

According to Clearpay, 98% of parents surveyed said they bought items in the past year to help make travelling with their young ones easier.

Some could find themselves spending as much as £336 per child, with popular items including headphones, tablets and gaming devices.

The survey also found 79% of parents said buying children's travel items had an impact on their regular household spending.

"Anyone who's travelled with children knows the value of keeping them happy en route - and parents are investing in everything from noise-cancelling headphones to snack packs to make the journey smoother," UK country manager at Clearpay Rich Bayer said.

"These items have become essential purchases for many parents before they head off on well-earned breaks. 

"Holiday spending can add up, so setting a budget for the different elements of a trip can help ensure that you're spending what you can afford."

Spain's new travel insurance rule explained - an expert breaks down how to avoid hefty fine

Anyone travelling to Spain from the UK could now face fines of around £5,900 and may even be denied entry at the border for not having the right travel insurance.

Travellers are now legally required to show proof of comprehensive health cover as part of their insurance before boarding flights or trains.

While the European Health Insurance Card (EHIC) or the UK Global Health Insurance Card (GHIC) still provide basic healthcare access in Spain, they no longer satisfy Spain's updated entry requirements.

It's becoming a common concern, after research by Saga Travel Insurance found a 5,000% surge in Google searches for the country's entry requirements.

Michelle Cooper, director of travel insurance at Saga, said that while the Spanish government hasn't specified exactly how much medical cover is now required, at least €30,000 is recommended for health-related incidents.

So, what should you do if you're travelling to Spain in the near future?

You should start by checking your policy provides adequate cover to meet the new legal requirements, according to Cooper.

"You can still get travel insurance on the same day you travel, too," she added.

"Most providers specify that your trip starts when you leave your home, so you need to buy your last-minute policy before you leave. 

"However, some policies include a 24–48 hour period where claims can't be made, so this could leave room for a fine or denied entry. 

"Generally, we always recommend the best time to buy your travel insurance is right after you've booked a holiday. Protecting your plans in the run-up to your holiday is just as important as when you're there."

You should also keep a copy of your policy printed or saved digitally to show at border control if asked, she added.

-SKY NEWS