Key Takeaways
- Experts expect inflation to ease when June’s CPI figures are released on July 22.
- The downward path is expected to be short-lived, with the next month’s figures taking into account higher energy prices following the price cap reset.
- Futures markets are expecting a single BoE interest rate hike by the end of 2026.
UK inflation is expected to show an easing when the Office for National Statistics releases data for June on Wednesday, July 22.
The UK Consumer Prices Index is expected to fall to 2.6%, down from 2.8% in May, according to a consensus of economists collected by FactSet.
The fall is likely to be driven by a drop in services inflation and motor fuel prices, according to Bank of America economists. Core inflation, which strips out volatile food and energy prices, is also set to ease to 2.3%, down 0.3 percentage points from May.
The downward inflation trend is likely to be short-lived with the effects of the Iran war-induced energy price spike set to affect other product categories in the coming months.
July’s data, which will be released Aug. 19, will take into account the higher energy price cap level, which reset 13.5% higher at the start of July.
The energy price cap has sheltered consumers from some of the impact so far, industry experts say, with the April-June cap set prior to the outbreak of the war.
Where Next for Bank of England Interest Rates?
June’s data will inform the Bank of England’s next action on interest rates at its meeting on July 30.
Futures markets currently expect the Monetary Policy Committee to hold interest rates at 3.75% at the next meeting, though the BoE’s chief economist Huw Pill recently warned that rates may have to increase to combat inflation.
“We think we would need to see a fairly significant upside inflation surprise next week or energy prices moving closer to the peaks seen in this conflict sustainably to make a July hike a realistic prospect,” say Bank of America economists Sonali Punhani and Ruben Segura-Cayuela.
“Data next week will be important to judge whether the energy shock is feeding into persistent price pressures. We expect it won’t, but risks to inflation are to the upside,” they add.
Following the latest GDP data for May, which beat consensus to grow 0.1%, the Bank of America economists say the near-term risks of an interest rate hike are greater than a cut.
The ending of the fragile ceasefire between the US and Iran in recent weeks has added further uncertainty over the likely path of interest rates.
“The hope, of course, is that the conflict doesn’t ignite inflation further, as this may force the Bank of England’s hand in raising rates,” says Michael Field, chief European markets strategist at Morningstar.
“At 3.75%, UK interest rates are among the highest in the Western world. At this point in the cycle UK businesses could do with interest rates moving down, not up.”
Increase in Government Spending Could Add to Inflation Pressures
If June’s data does show an easing in inflation, it will undoubtedly be good news for prime minister Andy Burnham in his first week in office.
The new Labour leadership’s plans for government spending, however, could further add to inflationary pressures in the months ahead.
“Fiscal policy is an unknown in terms of the outlook for inflation,” says Victoria Scholar, head of investment at interactive investor.
“Gilt markets are pleased that Andy Burnham seems to want to stick with Reeves’ fiscal rules and are relieved with the reported selection of Mahmood over Miliband as chancellor,” she says.
“However the incoming government could mean more spending at the budget, which could have an inflationary effect. However if funded through taxes over debt, the impact would be reduced,” adds Scholar.
When Are the Next UK Inflation Releases?
- July 22, 2026
- Aug. 19, 2026
- Sept. 16, 2026
- Oct. 21, 2026
- Nov. 18, 2026
- Dec. 16, 2026
