The rate of food inflation has gone up to 4.5%, the highest rate since February 2024. Core inflation, which does not include food or energy prices, rose from 3.5% to 3.7%. Services inflation – which focuses more on categories like education, hospitality and culture rather than the cost of goods – remained at 4.7%, though this was slightly above the 4.6% predicted by economists.
Why has the rate of inflation increased?
The key factors behind June's inflation rise was the cost of food, clothing, and air and rail fares. Fuel prices did fall, but only by 9% in the year to June 2025 compared to 10.9% in the year to May 2025. The average petrol price dropped by 0.5p between May and June this year, a much smaller drop than the 3p fall over the same period last year. This means that while the price has dropped, it still contributes towards a rise in the inflation figure.
The airfare rise was particularly sharp – the highest June increase since 2018 – but this is a notably volatile area, especially for high-cost international flights.
Rises in clothing and food prices could possibly be down to retailers and operators pushing the cost of increased national insurance contributions onto the public through higher prices at the till. Food and drink inflation was recorded at 4.5% in the year to June 2025, its highest rate since February 2024.
The overall figure for services inflation has remained the same, though still slightly above expectations. This is important because it is a metric that the Bank of England sees as a valuable guide to domestically generated price pressures, and so could be key to any future interest rate cuts.
What does the latest inflation data mean for savers?
Inflation has risen, but it remains well below the lofty heights of late 2022 and early 2023, when it consistently topped 10%. The relationship between inflation and savings can be confusing, as it isn't necessarily the case that high inflation brings about high interest rates and better returns for savers. While it is true that inflation remaining above the Bank of England’s 2% target means that the base rate of interest could be maintained for longer, high inflation is still bad news for your savings.
Firstly, banks often take much longer to pass on rate rises to savers than they do borrowers. This means it can take a long time for higher inflation figures to translate to a boost in your savings rate. Secondly, inflation erodes the value of cash, so your money in the bank will buy you less as the cost of living goes up.
Slowing inflation is good news for savers, as what you have put away should hold its value for longer. You can find the best savings accounts on our ‘Best savings accounts in the UK’ page.
What does the latest inflation data mean for the State Pension?
State Pension rises are calculated using the 'triple lock' system; the government's method of guaranteeing that State Pension payments will rise at the start of each tax year. Under the triple lock, the State Pension will increase each April by the highest of three measures; 2.5%, average wage growth or the CPI rate of inflation. The CPI figure used is the year-to-date rate from the most recent September, while wage growth figures used are for July. This means that the relevant CPI figure for the April 2026 increase will be measured in September 2025. If inflation stays around its current level, it will mean pensions will rise by more than 2.5% next year, though it is likely that average earnings data will eclipse inflation and be the relevant figure in the calculation.
Despite this, high inflation is not good news for pensioners. Just like for savers, the spending power of any cash put away will fall as inflation goes up. While State Pension payments and inflation-linked annuities will rise, the real value of the money is eroded by rising costs.
What does the latest inflation data mean for mortgages?
The latest ONS figures are a step in the wrong direction for those looking for lower mortgage rates. The Bank of England Monetary Policy Committee, which sets the base rate that lenders follow, will likely be concerned that inflation has risen unexpectedly and continues to be far from its 2% target. Cutting interest rates makes borrowing cheaper, boosts spending and is generally inflationary, however, it is not yet clear whether June's surprise inflation increase is quite enough to stop the trend of falling mortgage rates in the long term.
Many analysts expect the Bank to still cut rates again this year. Even with the CPI so far from its 2% inflation target, the UK economy contracting for a second month in a row could be enough to balance out the price pressures of higher inflation.
Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said: "While June’s hot inflation won’t deter policymakers from sanctioning an August policy loosening, given mounting worries over economic conditions, these figures may increase caution over the pace of future rate cuts."
For the latest on when the Bank of England is likely to cut interest rates, check out our article 'Will interest rates continue to fall in 2025 & how low will they go?'. You can find the best mortgage rates currently available in the UK on our ‘Best mortgage rates in the UK’ page.
What to do if you're struggling to pay your bills
Household bills are rising, but there is help available if you're struggling.
If you think you're likely to fall behind on your bills, reach out to the relevant utilities supplier, council or mortgage lender to explain your situation. There will typically be policies in place to help provide a realistic payment plan that can help you avoid late fees and extra charges.
You should also make sure you are claiming all of the help you are entitled to by checking your eligibility for benefits through entitledto.
We also have a number of articles that may be more specific to your situation and could offer further help:
- How to save money on your energy bills
- How to save money on your water bills
- How to save money on your mortgage
- How to save money on your council tax
- Where to get free debt advice
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