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U.K. inflation unexpectedly accelerated to the highest level in three years in June, driven by widespread price increases that challenge the Bank of England’s argument that the surge will be temporary.

Consumer prices climbed 2.5% from a year earlier, exceeding all but two estimates in a Bloomberg survey of 35 economists. Prices rose from May in the vast majority of 12 broad divisions, the Office for National Statistics said Wednesday. The pound advanced.

The jump further above the BOE’s 2% target will strengthen views among investors and a growing minority of economists that policy makers will raise interest rates as soon as next year. It also shows how inflation is emerging as a test for central banks in major economies, coming a day after U.S. consumer-price growth unexpectedly surged to 5.4%.

“Critically, we do not believe that higher inflation will be fully transitory,” Kallum Pickering, a London-based senior economist at Berenberg, who expects the first U.K. rate hike in August next year, wrote in a report.

While the risk of current price growth becoming more entrenched is still modest, “the warning from history is clear -- all periods of high sustained inflation appear temporary at first,” he said.

The U.K.’s 10- and 30-year government bonds led a rise in yields across the curve after the data, climbing four basis points. The spread between two- and 30-year debt, which reflects the balance between tightening prospects and inflation expectations, steepened slightly after two days of flattening. The pound gained 0.2%.

The BOE predicts that inflation, which was as low as 0.2% last August, will exceed 3%. But crucially for policy, the central bank has maintained that the pressure would prove temporary. Deputy Governor Jon Cunliffe said after the report that some consumer price gains are “transitory,” while others will persist.

“The forecast process is to understand the fundamentals that are driving this and to be blunt it’s more difficult to do that in a situation like this for which we have no precedent,” Cunliffe said in an interview on CNBC on Wednesday.

What Bloomberg Economics Says ...

“Inflation surprised to the upside again in June, putting it on course to breach 3% by the end of the year. But the detailed data still indicate the pick up will be transitory -- we expect price gains to be back below target by spring next year. The news is unlikely to prompt a significant reappraisal of the outlook by the Bank of England, which expects the spike in inflation this year ultimately to fade.”

--Dan Hanson, senior economist. Click for the REACT.

Read More: GLOBAL INSIGHT: How Inflation Spike Could Prove Long-lasting

Governor Andrew Bailey this month dismissed calls for imminent action by saying officials shouldn’t overreact to transitory factors affecting prices.

Cathal Kennedy, European economist at RBC, said the Monetary Policy Committee will likely wait to see how the labor market recovers after the government winds down the furlough program in September.

“This is the key, this is we think the key for the outlook,” he said in an interview. “For all the talk about anecdotal problems with hiring and shortages in certain sectors, there are still two million in the furlough scheme so it’s difficult to get a true handle on what’s going on in the labor market at present.”

But Robert Wood, an economist at Bank of America Merrill Lynch, said while he still expects inflation to ease back next year, some BOE policy makers may choose not to look through the surge. “The inflation news = more hawkish BOE,” he wrote.

The National Institute of Economic and Social Research warned that inflation is likely to be running as high as 3.25% in June next year, with the reversal of value-added tax cuts to help firms through the pandemic adding further impetus to prices. That “might prompt the Bank of England to review its communication regarding policy rates and continuation of asset purchases,’’ Niesr said in a note.

Wednesday’s release showed prices for food, used cars, clothing and footwear, eating and drinking out, and fuel rose in 2021 but mostly fell in 2020, resulting in the largest upward contributions to the change in the inflation rate. Motor fuel costs rose 20.3% from a year earlier, the most in more than a decade.

The ONS said people were seeking alternatives to public transport and paying more for it, using savings built up during lockdowns. A global shortage in semiconductors held back production of new cars, forcing many to turn to the second-hand market. Prices for used vehicles rose 4.4% between May and June, the strongest increase on record.

These gains were partially offset by a large downward contribution from games, toys and hobbies, where prices fell this year but rose a year ago.

A separate report showed pricing pressures in manufacturing eased slightly in the last month. Manufacturing raw material costs rose 9.1% from a year ago in June, slower than the 10.4% gain the month before. Economists had expected an acceleration. The price of goods leaving factories rose 4.3% from a year ago, less than the gain a month earlier.

— With assistance by James Hirai, Harumi Ichikura, and Kristine Aquino