No relief for UK’s Reeves as sticky inflation hits rate cut hopes

Chancellor Rachel Reeves received a fresh blow on Wednesday from data showing higher-than-expected inflation in June.

Consumer prices rose 3.6 percent on the year last month, an acceleration from 3.4 percent in May. Analysts had expected the rate to stay unchanged.

The numbers are a fresh reminder of the Bank of England’s problems in getting inflation back down to its target, and reduce the likelihood of an interest rate cut when the Monetary Policy Committee next meets in August.

The Bank has guided all year that inflation would rise through the summer due to base effects, notably from the increase to regulated energy bills in April. It expects inflation to peak around September before underlying weakness in the economy pushes it back down toward 2 percent next year.

The British government could badly do with some support from lower interest rates, given that the cost of servicing its debt is one of the biggest elements of public spending, and given that the government’s climbdown on benefit cuts this month has left Reeves little or no margin of error for meeting her fiscal rule.

The news will sharpen the focus on data from the labor market that are due on Thursday. They’re expected to show another rise in joblessness.