Why Is UK Inflation Still Rising?

UK inflation rose by 3.6% in the 12 months to June, largely driven by the rising cost of food and fuel. Despite a series of interest rate cuts, inflation remains above the Bank of England’s 2% target, continuing to impact household budgets and financial plans.

Understanding these trends is critical when working with a financial adviser to manage your finances, especially when considering pension, protection, and investment options.

📅 Book a meeting with an adviser to discuss how inflation could affect your personal financial strategy.

What Is Inflation?

Inflation refers to the rate at which prices for goods and services rise over time. If a product costs £1 today and £1.05 a year later, the inflation rate is 5%. Even modest inflation can erode the value of your savings and impact long-term planning.

This is why it’s vital to find a financial adviser who can offer proactive advice tailored to inflationary pressures.

How Inflation Is Measured in the UK

The Office for National Statistics (ONS) tracks the prices of hundreds of goods and services that make up a “basket of goods.” This includes everyday essentials like food and fuel, and newer items such as yoga mats and virtual reality headsets, reflecting changing consumer habits.

The most commonly cited metric is the Consumer Prices Index (CPI), which showed a 3.6% annual increase in June 2025, up from 3.4% in May. Another key metric, core inflation—which excludes food and energy—was 3.7%, suggesting underlying price pressures are persisting.

If you’re unsure how inflation affects your savings or income, it’s time to consult a certified adviser offering independent financial advice.

📞 Book a meeting with an adviser to ensure your financial strategy is inflation-resilient.

Why Are Prices Still Going Up?

While inflation has dropped significantly from its 11.1% peak in October 2022, prices are still climbing—just at a slower pace.

The initial surge was due to increased global demand for oil and gas post-Covid and geopolitical instability, including the war in Ukraine. These events led to sharp rises in energy prices, and food costs have remained a stubborn contributor. In the 12 months to June 2025, food prices alone rose 4.5%, driven by the cost of chocolate, butter, coffee, and meat, alongside higher energy and labour expenses.

This context is crucial for financial advisors to consider when helping clients with pension drawdowns, protection planning, or creating a diversified portfolio.

How Do Interest Rates Affect Inflation?

To curb inflation, the Bank of England previously raised the base rate to 5.25%, the highest in 16 years. Higher rates make borrowing more expensive and saving more attractive, which should reduce consumer spending and slow inflation.

However, there’s a trade-off. Higher borrowing costs can lead to:

-Increased mortgage repayments

-Reduced business investment

-Job cuts and lower economic growth

All of this must be factored into financial planning. An independent adviser can help you weigh these risks and adjust your financial strategy accordingly.

What’s Next for Interest Rates?

The Bank of England began cutting rates in August 2024, with further reductions in November, February, and May 2025, bringing the base rate down to 4.25%. Despite the uptick in inflation in June, many analysts expect another cut at the 7 August 2025 meeting.

The Bank has warned that global uncertainties—like the introduction of new US tariffs—could cool the economy faster than anticipated, potentially accelerating future rate cuts.

Now may be a good time to speak with a top financial adviser to review your mortgage, investment, or savings strategy in light of changing interest rates.

💼 Book a meeting with an adviser to explore how interest rate shifts might impact your long-term goals.

Are Wages Keeping Up?

Between March and May 2025, regular pay in the UK grew by 5%, outpacing inflation and resulting in a real-terms wage increase of 1.8%. Public sector wages grew by 5.5%, while private sector earnings rose by 4.9%.

Despite this, the unemployment rate increased to 4.7%, its highest level since June 2021, and job vacancies continue to decline. This shift in the labour market may impact household income stability, making sound financial planning more essential than ever.

Whether you’re adjusting to career changes or preparing for retirement, speaking with a certified financial adviser can help you make informed decisions.

Inflation and Interest Rates Beyond the UK

Inflation and interest rate trends aren’t unique to the UK. In the Eurozone, inflation fell to 1.9% in May, and the European Central Bank has gradually reduced its key interest rate from 4% to 2%.

In the US, inflation remains slightly elevated at 2.7%, and the Federal Reserve has held its interest rates steady since early 2025. Global economic trends like these can influence the UK’s financial landscape and are critical considerations when advising clients.

A financial advisor who offers global context and local expertise is best placed to guide you through turbulent economic conditions.

Final Thoughts

As inflation and interest rates fluctuate, the ability to adapt your financial strategy becomes increasingly important. Whether you’re seeking help with your pension, evaluating your protection needs, or just looking for the best service from an independent adviser, informed guidance is key.

By working with a top financial advisor, you can ensure your finances are aligned with your goals—even during uncertain times.

Founded in 2017, Fintuity has fast become one of the only digital Independent Financial Advisers (IFA) in the United Kingdom.  Fintuity offers a wide range of financial advisory services including pensions, protection, investments and mortgage advice. The key difference is that as an exclusively digital service, we can offer significant savings and a service that is direct to you and on demand.