Key Points at a Glance:
- The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.1% in the 12 months to June 2025, up slightly from 4.0% in May.
- The Consumer Prices Index (CPI) rose by 3.6% over the same period, up from 3.4% in May.
- Transport costs, especially motor fuel, were the biggest contributor to the monthly rise.
- Housing and household services, particularly owner occupiers’ housing costs, helped to offset some of the upward pressure on inflation.
What’s Driving Inflation Right Now?
Inflation nudged up in June 2025, continuing the upward trend seen since the start of the year. After briefly dipping earlier in the spring, price growth has picked up again, with the main pressure this month coming from the cost of transport, especially petrol and diesel.
Petrol prices didn’t fall as much as they usually do at this time of year, and diesel followed a similar pattern. This meant overall fuel prices were still down on the year, but by less than before leading to an upward pull on the inflation figures.
Air fares also climbed more than usual for June, with long-haul and European routes showing the biggest jumps. Rail fares and vehicle maintenance added further pressure, particularly roadside recovery services.
Food and drink prices saw a slight increase in the annual rate too, climbing to 4.5%. This was the third monthly rise in a row and the highest since February. Small increases were seen in items like bread and cereal, meat, and cheese. On the flip side, chocolate and fruit juice prices eased a little.
Clothing and footwear prices also ticked up after falling for the last couple of months, though the month-on-month figures show prices fell a little, just not by as much as this time last year.
What About Housing Costs?
Owner occupiers’ housing costs, which are included in CPIH but not CPI, actually helped to hold back inflation this month. These costs rose by 6.4% in the year to June, slightly down from 6.7% in May. That might sound high, but it marks the fifth straight month that these costs have eased from the peak seen in January.
The drop in housing inflation was enough to partially offset the increases seen in transport and food. However, it’s worth noting that housing and household services remain the largest single contributor to overall CPIH inflation.
Core Inflation Remains Sticky
Core inflation which excludes the more volatile items like energy, food, alcohol and tobacco also edged up. The core CPIH rate rose to 4.3% from 4.2% in May, and the core CPI measure climbed to 3.7% from 3.5%.
This suggests that underlying price pressures in the economy remain stubborn. Even if headline inflation looks manageable at first glance, core inflation can be a better guide to how sticky prices are in general.
Goods inflation rose too, hitting its highest level since October 2023. Services inflation, while still high, eased slightly the lowest level seen since January 2023. Together, these figures show a mixed picture of inflationary trends across different sectors.
How Does This Compare Internationally?
While inflation is clearly heading up again locally, the rate is still high compared to many neighbouring countries. For example, June’s estimated inflation figures for France and Germany came in significantly lower, at just 0.8% and 2.0% respectively. This shows that the local economy is facing slightly different challenges to others, particularly when it comes to energy and service costs.
What Does This Mean for Interest Rates?
With inflation heading in the wrong direction again, the Bank of England is likely to pause before making any major decisions. The current interest rate remains at 4.25%, and while there had been talk of potential cuts later in the year, this latest data might cool that discussion for now.
Higher interest rates are one of the main tools used to bring inflation under control. They make borrowing more expensive, which can help slow down demand across the economy. But they also impact mortgage rates, personal loans and the cost of living more generally.
If you’re on a variable rate mortgage or coming to the end of a fixed-rate deal, this continued uncertainty could have a real impact on your monthly payments. It’s also something to keep in mind if you’re thinking about buying a new property or remortgaging.
Looking Ahead: What Should You Be Watching?
The slight uptick in inflation this month is a reminder that the journey back to lower prices may not be straightforward. A few key factors will influence what happens next:
- Fuel costs: These have a big impact on inflation and are difficult to predict.
- Core inflation: If it remains high, it could delay interest rate cuts.
- Wage growth: Rising wages can keep inflation higher for longer if they lead to increased spending.
- Global trends: External factors like international fuel prices and geopolitical events still play a role.
How We Can Help
At Kerr & Watson, we keep a close eye on inflation and interest rate trends because we know how directly they affect your finances. Whether you’re reviewing your mortgage, looking to buy your first home, or thinking about switching lenders, we’re here to help you make sense of the market and make informed decisions.
Our protection advisers are also on hand to review your insurance plans and make sure they still meet your needs as prices and circumstances change.
Get in Touch for Personalised Advice
Everyone’s financial situation is different. That’s why we offer tailored mortgage and protection advice based on your unique goals and circumstances. If you’re feeling uncertain about what this latest inflation update means for you, we’d be happy to chat.
Get in touch with us to explore how the latest inflation and interest rate news could impact your mortgage or insurance planning.
Data Source: Office for National Statistics (ONS)
Read more: Consumer price inflation, June 2025
