UK inflation falls to 2.6% in June amid lower food and fuel prices

UK inflation falls to 2.6% in June amid lower food and fuel prices

The UK inflation rate slowed to 2.6% in the year to June, falling below the 2.7% forecast by most economists. According to the Office for National Statistics (ONS), this represents the lowest level since March 2025 and a decrease from the 2.8% recorded in May.

The decline was primarily driven by lower costs for transport, food, and non-alcoholic beverages. Fuel prices at the pump dropped in June following an agreement between the US and Iran to halt military operations and reopen the Strait of Hormuz. Diesel prices fell by 10.7p per litre to 176.4p, while petrol prices declined by 2.1p per litre to 155.3p.

This marked the first time petrol prices eased since the Middle East conflict began at the end of February. However, the conflict's impact remains evident; motor fuel prices in the year to June were 21.3% higher than the previous year.

Food and non-alcoholic beverage prices fell 0.2% month-on-month, bringing the annual inflation rate for this category down to 1.7% from 2.2% in May. The ONS noted that cheaper goods such as beef, chocolate, and margarine drove this trend, while prices for oils, fats, and dairy also fell compared to a year earlier. Meat and vegetable prices rose in June, though the increase was smaller than during the same period last year.

Retail activity also contributed to the slowdown. Grant Fitzner, ONS chief economist, said that clothing prices fell due to start-of-summer sales that offered larger discounts than the previous year. Fitzner further noted that the cost of raw materials dipped for the first time since January, primarily because of lower crude oil prices, and that the growth in costs for goods leaving factories slowed.

The data provides an early boost for Prime Minister Andy Burnham and Chancellor John Healey, who have prioritized easing the cost of living. To support this agenda, the government announced a £2 cap on bus fares starting in January and a VAT cut on electricity bills. The VAT rate will drop from 5% to 0% on October 1, a move estimated to save households about £45 a year and reduce CPI inflation by approximately 0.1 percentage points.

"Falling inflation is news families want to hear but there is much more to do to give people the breathing space they need,"

John Healey, Chancellor, via LBC

Despite the current dip, several economists warn that the relief may be temporary. Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, described the June figure as a false dawn, suggesting that a rise in Ofgem's price cap will likely push inflation back up. Analysts forecast a rise in inflation for July following a 13% jump in the Ofgem energy price cap at the start of the month.

Further volatility is expected due to the resumption of hostilities in the Middle East, which has pushed Brent crude prices back above $90 a barrel. Because food inflation often lags by up to 13 months due to supply chain delays, the effects of the war in Iran may not yet be fully realized.

The Bank of England maintains an inflation target of 2%. While inflation remains above this target, Joe Nellis, an economic adviser at MHA, noted that current levels are far below the IMF's April prediction that inflation would head toward 4% by the end of the year. This lower-than-expected reading may ease concerns that the central bank will increase interest rates from 3.75% in July.

While the government celebrates the dip, shadow chancellor Mel Stride has accused the administration of stoking inflation.