The inflation rate climbed to 3.6% in the year to June 2025, threatening the prospect of an August base rate cut.
This latest increase, from 3.4% the month before, means inflation is at nearly twice the rate of the Bank of England’s 2% target.
Peter Stimson, director of mortgages at the lender MPowered Mortgages, said: “The Bank’s Governor has spent weeks hinting that a Base Rate cut in August was all but a done deal.
“But that certainty has evaporated in the face of today’s inflation data. CPI is not far off double the Bank’s 2% target, and core CPI is climbing too – confirming that the problem isn’t just the product of temporary factors like the spike in oil prices seen following America’s air strikes on Iran.
“Several members of the Bank’s ratesetting Monetary Policy Committee had sounded unconvinced that the time is right to cut the Base Rate to give the stagnant economy the boost it needs.
“Britain’s inflationary relapse will crystallise that view, and when the MPC meets in three weeks’ time it’s likely several members will vote to hold off on a rate cut.
“While the weakness of the economy means the Bank will be keen to resume rate cuts in coming months, the likelihood of an August cut has plunged from near certain to barely 50/50.
“This is likely to cause a shift in the swap rates which determine mortgage interest rates.
“Mortgage rates may well have fallen as far as they can for now, and in the coming weeks rates may even creep up back as lenders recalibrate in response to rising swap rates.”
The Bank’s rate setting group the Monetary Policy Committee will next meet on the 7th August.
Paresh Raja, chief executive of specialist lender Market Financial Solutions, urged the Bank to cut the base rate despite the increased inflation.
He said: “The Bank of England’s Governor, Andrew Bailey, recently commented that he would consider lowering the base rate if the labour market continues to soften.
“And yet, his accompanying caution about cutting rates while inflation remains above 2% continues to frustrate many in the property market. That target now feels like more than a guideline – it’s starting to carry disproportionate and potentially harmful weight.
“The Bank has cut rates while inflation was above target in the past. This moment should be no different. Economic growth has stagnated for two consecutive months, so it feels like the right time to stop fixating on short-term CPI trends and start prioritising policies that support recovery.
“In turn, by cutting the base rate, the Bank would give property buyers and investors the confidence they need to resume their investment plans and encourage greater activity across the property market – and across the wider economy – in the final five months of the year.”
The base rate currently sits at 4.25%.