Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, said: “Inflation is proving to be stubborn once again, with June’s CPI reading rising to 3.6%. This uptick will be unwelcome news for the Bank of England, which is facing a delicate balancing act – bringing inflation back to its 2% target without further dampening economic growth, particularly following May’s unexpected GDP contraction. Today’s figures, along with expectations of a further inflation spike this Autumn, suggest the Bank will continue to approach any further interest rate cuts with caution, with the Monetary Policy Committee facing a tough decision when they meet again in August. If they do decide to cut rates, movements are likely to be incremental for the rest of this calendar year, however there are a number of factors in play - Bank of England Governor Andrew Bailey has also highlighted the job market as an area to watch, suggesting that a slowdown in employment could accelerate the pace of rate cuts. For borrowers, higher for longer rates mean the prospect of sustained higher costs, particularly for mortgage holders and those with other forms of debt. On the other hand, savers continue to benefit from competitive rates, with some best buy easy-access savings accounts still offering between 4% and 5% – though there’s a wide variation, so it’s worth shopping around. It’s worth noting that any cash gains are still likely to be marginal with inflation considered – those willing and able to accept an element of risk could consider investing for a better chance of substantial returns above inflation, perhaps through a tax efficient product like a stocks and shares ISA or, taking a longer-term view, a pension.”
Simeon Willis, Chief Investment Officer at XPS Group: “It has been announced that UK CPI inflation over the 12 months to June increased to 3.6%. June has historically tended to be a relatively benign month in the year for price increases but this June prices have crept up, heading in the wrong direction for the Bank of England. From this point, even if prices were to remain static at the current price level, we are still looking well into 2026 before 12 month CPI is close to the Bank of England’s 2% target. US inflation has also started to pick up, in light of Donald Trump’s tariffs. Whilst domestically for the US tariffs are inflationary, for other regional economies it could well have the opposite effect. There remains considerable scope for the UK to benefit from lower inflation as a consequence of cheaper goods finding their way to the UK in place of the US, although this will take time to feed through. Longer term UK inflation expectations have picked up modestly from their low at the start of July too. Fortunately for pension schemes and their members, expectations still remain at the lower end of their trading range of the last 3 years, albeit well above the BoE’s 2% target.”
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