UK inflation rose unexpectedly to 3.6% in the year to June, from 3.4% in May, according to the latest Office for National Statistics data.

The largest downward contribution to the monthly change came from transport, particularly motor fuels, while housing and household services, particularly owner occupiers’ housing costs, made a large, partially offsetting, downward contribution.

L&C Mortgages associate director David Hollingworth says the increase in inflation has come as an “unwelcome surprise”. 

Hollingworth comments: “That will raise the question of whether it’s enough of a surprise to force the Bank to consider a delay to any further cuts in base rate.”

“The recent tone has been consistent in its suggestion that interest rates should continue to fall but it’s been harder to be sure when those cuts may come, when data doesn’t follow the expected path.”

Last month, the Bank of England held the base rate at 4.25% as widely expected. The bank’s focus is on reducing the rate of inflation to its target of 2% but Hollingworth explains “it may see enough reason to look through today’s figures to reduce rates in the August meeting”.  

“Many economists will suggest that inflation should still ease over the course of this year and that weak economic growth and a potentially looser labour market leaves the path open to rates continuing the downward trajectory.”

“Mortgage rates have been reflecting the market’s confidence in more cuts to come, as lenders have been quick to take advantage and trim back fixed rates. Lenders have been locked in an attritional rate battle that has seen frequent albeit small reductions made to fixed rate mortgage pricing.”

He notes that today’s inflation figures “could take a bit of momentum out of those reductions but may not be enough to make a major reversal in those mortgage rate improvements”.

  However, he highlights: “With recent changes in regulatory approach, lenders will have more flexibility when offering higher multiple mortgages and that is already feeding through into lender criteria.”

“That and the promise of further rate cuts should still give mortgage borrowers room for optimism but today’s unexpected data is a reminder of just how hard it is to second guess where rates may head.”

Just Mortgages head of mortgages and protection Ben Allkins says: “The question on everyone’s lips is what impact this jump in inflation will have on the MPC meeting next month. While it has risen and further pressures are likely to push inflation higher throughout the year, disappointing GDP figures for a second successive month and a weak labour market are still likely to deliver the rate cut that is widely expected in August.”

 “It’s long been clear that the MPC faces a difficult tug of war between managing inflation and supporting economic growth. While we cannot deny that inflation is important and clearly still a challenge, current economic conditions have dictated a need to shift that balance and help pull up the nose.”

“A cut to interest rates next month will give mortgage lenders fresh ammo to look at prices and hopefully create new opportunities for people to kickstart their purchase plans. Given the significant role that housing plays in delivering economic growth, everyone comes out a winner.” 

Meanwhile, Mortgage Advice Bureau deputy chief executive Ben Thompson adds: “A slight uptick in inflation is a reminder that the path back to target won’t be completely smooth and entirely predictable.”

“While the overall outlook into next year remains downward, persistent pressures—especially in services—may give the Bank of England reason to pause before moving on rates.”

“It is, nonetheless, a great time to buy. With house prices having adjusted over the last few years, and numerous mortgage options now available, getting on the property ladder is more achievable than it has been in a while.”

“In fact, many aspiring first time buyers who were priced out of the market last year may not realise they’re now in a strong position to buy.”