UK inflation ticked upward in June 2025, reflecting persistent pressures across both goods and services. On an annual basis, headline inflation accelerated to 3.6 percent from 3.4 percent in May, while core CPI (stripping out volatile items) edged up to 3.7 percent, signalling underlying inflationary momentum remains firm. Goods inflation increased from 2.0 percent to 2.4 percent, driven by rising fuel prices, while services inflation stayed elevated at 4.7 percent, underscoring the resilience of domestic cost pressures.

Meanwhile, CPIH, which includes owner occupiers' housing costs, rose by 4.1 percent year-over-year, up marginally from 4.0 percent, with the monthly gain of 0.3 percent from 0.2 percent reflecting broad-based increases. Notably, core CPIH rose to 4.3 percent from 4.2 percent year-over-year, maintaining its upward trajectory despite a slight easing in services inflation (from 5.3 percent to 5.2 percent). Transport, especially motor fuel, was the primary upward driver of both the CPI and CPIH, partially offset by slower growth in housing-related costs.

Indeed, the latest updates suggest that the service sector is the key driver of inflation with a re-emergence of goods inflation, complicating the Bank of England's path to easing. While headline rates may appear to stabilise, core indicators reveal that price pressures are still deeply rooted, suggesting continued caution in monetary policy adjustments. This update takes the RPI to 8 and the RPI-P to 7, meaning that economic activities continue to stay within the expectations of the UK economy.

UK annual inflation seen unchanged at 3.4 percent in June versus 3.4 percent in May. Month on month, the consensus looks for another increase of 0.2 percent after rising 0.2 percent in May.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.