Food and fuel costs bring unexpected increase in inflation

Inflation unexpectedly rose in June, driven by fuel and food prices, according to official figures published yesterday, underscoring the challenge facing the chancellor, Rachel Reeves.

- Richard Partington

The Office for National Statistics said the consumer prices index rose by 3.6% last month. City economists and the Bank of England had forecast it would remain the same as May's reading of 3.4%.

The increase was largely caused by petrol and diesel prices falling only slightly in June compared with a much larger decrease a year earlier, alongside food price inflation rising for a third consecutive month to the highest rate in more than a year.

Driving the headline rate further above the Bank's 2% target, the rise was announced as the government faces intense scrutiny over its economic management after two months of negative growth and with speculation mounting over tax rises.

On Tuesday, Reeves had sought to shrug off Britain's anaemic growth in her Mansion House speech, telling City bankers that she would cut red tape to help reboot the economy. However, critics said the chancellor's maiden budget had added to Britain's economic headwinds, including a £25bn increase in employment taxes that business leaders said would force them to cut jobs and raise prices.