Key Takeaways
- UK inflation has eased to 2.6% in the 12 months to June, driven by lower fuel and food costs.
- The more positive data is expected to only be a temporary reprieve in the pace of price rises ahead of new data in August.
- The Bank of England is due to make its next decision on interest rates on Thursday, July 30.
UK inflation eased to 2.6% in the 12 months to June, according to the Office for National Statistics, lower than the 2.8% recorded in May but in line with consensus forecasts. Transport prices made the largest downward contributions to easing inflation in the period, the ONS said, as well as food and drink prices.
The figures were exactly in line with economists’ expectations and will be welcomed by new prime minister Andy Burnham, who took office on Monday. Core CPI, which excludes more volatile energy and food costs, showed a 2.6% increase over the reporting period—unchanged from May’s figures, and above consensus forecasts for a 2.3% rise.
Economists suggest this overall downward path toward the Bank of England’s inflation target of 2% may be once more short-lived, as the effects of the increased Ofgem price cap, effective this month, will not be visible until next month’s figures for the 12 months to July.
The price cap, which sets the maximum amount suppliers can charge per unit of gas and electricity, rose by 13% at the start of July. The news also comes as Andy Burnham’s new government attempts to ease cost of living pressures by removing VAT on electricity bills. It is not yet clear what will be in the government’s first budget, but significant changes to tax and spending are expected.
“Lower energy prices have done much of the heavy lifting in bringing inflation down in today’s data but this will prove temporary,” says Zara Nokes, global market analyst at J.P. Morgan Asset Management.
“Prime minister Burnham’s decision to remove VAT on domestic electricity bills is largely symbolic and will do little to push down on cost-of-living pressures in a meaningful way,” she adds.
Why Is UK Inflation Falling?
Transport, food, and non-alcoholic beverages made the largest downward contributions to easing inflation in the 12 months to June, ONS said, with the cost of transport slowing to a 5.7% increase in that period—after a 6.8% increase in the 12 months to May. Falling fuel costs, as oil prices reacted to the ceasefire in the US-Iran war, weighed on transport prices.
Food and non-alcoholic beverage prices rose 1.7% over the 12-month period to June after a 2.2% increase in the 12 months to May, and fell by 0.2% on a monthly basis from May to June.
The ONS also highlighted falling clothing and footwear prices in the 12 months to June this year. These fell 0.5%, compared with a rise of 0.2% in the 12 months to May. This is an expected seasonal change, it said, reflecting the summer sales season. Higher temperatures may also have played a role as consumers attempted to stay cool amid a UK heatwave.
Will the Bank of England Hike Interest Rates This Month?
Interest rate futures have been highly sensitive to events at home and abroad—from the change in UK prime minister to the Iran war—with expectations for rate hikes adjusting on an almost weekly basis.
Last week, futures markets were marginally pricing in two rate hikes by the Bank of England—in September and November—but this could change as further data becomes available and as markets assess how likely the new UK government’s spending plans are to have an upward effect on inflation. The Bank of England’s Monetary Policy Committee meets at the end of the month but is expected to hold interest rates at 3.75%.
Michael Metcalfe, head of macroeconomic strategy at State Street Markets, says much depends on the next three inflation prints.
“Inflation is improving, but sufficient doubt on the outlook remains to prevent the possibility of interest rate hikes being ruled out entirely.”
When Are the Next UK Inflation Releases?
- Aug. 19, 2026
- Sept. 16, 2026
- Oct. 21, 2026
- Nov. 18, 2026
- Dec. 16, 2026
