Inflation has turned nasty but it's not yet time to panic

The Bank can (and should) still cut interest rates next month

- JAMES MOORE CHIEF BUSINESS COMMENTATOR

Imagine “Don’t Panic” in large friendly letters - the pink ones that fans of The Hitchhiker's Guide to the Galaxy will know well – when you read that inflation did the dirty on us last month, coming in at 3.6 per cent.

The last few weeks have seen Bank of England governor Andrew Bailey dropping hints about rate cuts, even suggesting that the rate-setting Monetary Policy Committee (MPC) could go further and faster if the jobs market continues to deteriorate.

But June’s inflation spoiled the party, hitting a near 18-month high, well ahead of the City’s consensus forecast compiled by Reuters. It called for 3.4 per cent, which is also what the Bank expected.

Prices in the UK are running hot - far hotter than in Germany (2 per cent) or France (0.8 per cent). With inflation at 2 per cent for the Eurozone as a whole, the European Central Bank’s refinancing rate sits at just 2.15 per cent, making life much easier for the economies of those countries when compared to the welter burden of base rates at 4.25 per cent that the British economy is struggling under.

Houston, do we have a problem? You could be forgiven for thinking as much, assuming the Office for National Statistics got its sums right (it didn’t in April).