UK inflation increased to 3.6% in June, up from 3.4% in May and 2.0% a year earlier, adding to economic uncertainty and potential risks to spending and investment. The Bank of England may lower interest rates next month if upcoming jobs data is weak. Current inflation is slightly above the Bank's forecasts, which predict a return to the 2% target next year. While wage growth appears to be cooling and money growth is stagnant, the inflation gap between the UK and euro area has widened primarily due to higher payroll costs stemming from policy changes.
The unexpected pickup in UK inflation to 3.6% in June from 3.4% in May will add to economic uncertainty and downside risks to spending and investment.
The Bank of England is still likely to trim interest rates again next month, especially if tomorrow's jobs data are weak.
Consumer and business expectations for inflation are stable, and underlying wage growth is now cooling.
The gap between inflation in the UK and the euro area has widened markedly since last October's Budget due to higher payroll costs.
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