As of June 2025, the UK’s annual CPI inflation rate was 3.6%, up from 3.4% in May. That remains above the Bank of England’s 2% target.
Quick summary: Prices are still rising—just more slowly than in the recent crisis.
Recent UK Inflation Snapshot
- CPI stood at 3.6% in June 2025.
- Food inflation reached 4.5%, the highest since early 2024.
- Forecasters expect inflation to peak at 3.7% in September.
- Q4 2025 average forecast sits near 3.2%.
Key Data Highlights
| Metric | Value |
|---|---|
| Headline CPI (June 2025) | 3.6% |
| Average Forecast for Q4 2025 | 3.2% |
| Peak Inflation Forecast (Sept) | ~3.7% |
| Bank Rate (Aug 2025) | 4% |
| Target Inflation Rate | 2% |
- Economists expect inflation to hold above 2% through the rest of 2025, with forecasts pointing to about 3.2% in Q4
- The Bank of England recently cut its base rate to 4%, the fifth cut since mid‑2024
Sources: ONS, Bank of England
Why Is Inflation Above Target?
- High transport and motor fuel costs are major drivers.
- Food prices continue rising sharply.
- Core inflation (excluding food and energy) remains elevated at 3.7% in June.
“Prices aren’t falling—they’re just rising less quickly.” – BBC Analysis
How Is UK Inflation Measured?
Inflation in the UK is mainly tracked via the Consumer Prices Index (CPI).
Every month, the ONS records prices for around 700 items across ~180,000 price points. This “basket” of goods and services represents typical UK household spending.
Example: If a loaf of bread cost £1.00 in July 2024 and £1.036 in July 2025, that’s 3.6% annual inflation.
You can explore how inflation has affected prices over time using the Bank of England’s Inflation Calculator.
Historical Context
Inflation has been falling steadily from its 40-year high:
- Oct 2022: 11.1% (highest since 1981)
- July 2023: 6.8%
- January 2025: 3.8%
- July 2025: 3.6%
Despite this progress, it remains stubbornly above target, complicating the Bank of England’s decision-making on interest rates.
What Is the UK’s Inflation Target?
The UK government sets an official 2% CPI inflation target, managed by the Bank of England.
This target:
- Helps keep price rises predictable
- Supports economic stability
- Guides wage negotiations, business planning, and savings decisions
If inflation strays more than 1 percentage point from target (above 3% or below 1%), the Bank of England’s Governormust write to the Chancellor explaining why—and what they plan to do about it.
Learn more at the Bank of England’s Inflation Target page.
What Is the Current Bank Rate?
- Wage growth remains firm at around 4.8%, despite a weakening job market.
- On 6 August 2025, the Bank of England cut the base rate to 4.00%.
- That is the fifth cut since mid-2024, and the lowest rate since March 2023.
- The Bank warned food inflation could lift overall inflation to 4.0%.
| Date | Bank Rate (%) |
|---|---|
| Aug 2024 | 4.00% |
| Nov 2024 | 4.75% |
| Feb 2025 | 4.5% |
| May 2025 | 4.25% |
| July 2025 | 4.25% (held) |
The Bank’s next decision is due 7 August 2025, when further cuts are possible if inflation keeps trending down.
How Do Interest Rates Affect Inflation?
When inflation is high, the Bank of England typically raises interest rates to:
- Make borrowing more expensive
- Reduce consumer spending and business investment
- Cool demand in the economy
This slows price rises.
Conversely, when inflation is under control, they can cut rates to support growth.
But it’s a balancing act—higher rates also mean:
- Bigger mortgage repayments
- Slower business expansion
- Risk of higher unemployment
Global and Forecast Context
- For Q3 2025, the Bank expects a peak near 3.7% or 4.0%, then a gradual decline House of Commons Library.
- Inflation is projected to stay above 2% through 2025, easing toward 2.6% in Q1 2026, and around 2% by mid‑2027
| Country | Inflation Rate (approx. June 2025) |
|---|---|
| UK | 3.6% |
| Eurozone | 1.9% |
| USA | 2.7% |
While the UK remains above target, other economies have seen sharper drops, partly thanks to earlier rate hikes and cheaper energy.
How Does Inflation Impact You?
High inflation affects everyone.
- Households: Rising food, energy, and housing costs strain budgets.
- Savers: Returns can lag behind price growth, eroding purchasing power.
- Borrowers: Higher interest rates mean costlier loans and mortgages.
- Businesses: Input costs rise, profit margins get squeezed, and pricing becomes uncertain.
Stabilising inflation helps people plan spending, borrowing, and saving with more confidence.
What to Watch Next
- The next CPI data is due around 20 August 2025 MoneyWeek+1.
- Look for signs of cooling in food prices and wage growth.
- Rate policy will hinge on whether inflation momentum shifts downward.
FAQs About UK Inflation
What is core inflation?
Core inflation excludes volatile items like food and energy. In June 2025, UK core CPI was around 3.7%, suggesting underlying price pressures remain.
Will inflation fall below 2% soon?
The Bank of England forecasts inflation may spike slightly in summer (around 3.7%) before gradually dropping closer to target by 2027. Much depends on energy prices, wages, and the global economy.
How often does the Bank of England set rates?
The Monetary Policy Committee (MPC) meets roughly every 6 weeks. The next meeting is on 7 August 2025.
Check Your Own Inflation Impact
Use the Bank of England’s Inflation Calculator to see how prices have changed for you over time.
References & Further Reading
Cambridge Currencies Tip:
Check our latest currency exchange rates to see how inflation and interest rate changes are affecting the pound.