UK Inflation eased in June, giving Andy Burnham’s new government a welcome early boost as it prepares to set out its fiscal plans.
UK CPI fell from 2.8% to 2.6% in June, bringing inflation closer to the Bank of England’s 2% target. However, higher energy costs and global uncertainty could still push inflation back up.
Experts are reacting to the latest figures below:
Richard Carter, head of fixed interest research at Quilter Cheviot:
“With Andy Burnham now at the helm, and a raft of fiscal policies expected this week, inflation has moderated for June, coming in at 2.6% and down from 2.8% in May. Much of this fall came as a result of a fall in petrol and diesel prices as energy costs dropped sharply in the wake of the ceasefire between the US and Iran, although that is now looking uncertain to remain the case as tensions remain high in the region.
“Burnham has said his newly formed government must be a ‘cost of living government’, meaning there is a lot of pressure on him and his colleagues to get inflation back down to the 2% target. Today he has targeted bus fares for consumers, but large packages of help, which would impact inflation significantly will be difficult given how much is out of his control and at the whims of events in the Middle East with energy prices. Indeed, taking VAT off household energy bills, which will marginally bring inflation down, risks being counteracted by a rise in the price cap come October.
“The good news for Burnham is that grocery inflation has slowed to its weakest rate since December 2024. However, with events in the Middle East still threatening to erupt back into a full-scale conflict as we saw earlier this year, this will continue to put pressure on the inflation rate. Some more fiscal jiggery pokery may be required to help keep it closer to target than it is now.
“What this means for the Bank of England is a continuation of its holding pattern until clearer signs from the Middle East emerge. One rate rise is still expected by the market, and should we see a further spike in gilt yields or inflation then more than that may be required. The UK’s fiscal position remains a tightrope, and despite Burnham’s noble desire for swift action, he may be reminded that the path for inflation may just tie his hands somewhat.”
Felix Feather, Economist at Aberdeen Investments, says:
“June’s inflation data offers some welcome relief for policymakers. Lower petrol and diesel prices over the month mean that energy made less of a contribution to inflation than previously, helping to pull the headline rate lower.
“However, this relief is likely to be fleeting. Household energy bills have yet to fully reflect this summer’s energy price shock, and the increase in the Ofgem price cap will push inflation higher again in the months ahead. The proposed 5% cut to household fuel VAT will come too late to have an effect in the summer. And when it does arrive, the difference it will make to the inflation outlook will be almost negligible – around 0.1ppt off the headline rate.
“As a result, we still expect inflation to move back above current levels over the remainder of the year, eventually breaching 3% even if tensions in the Middle East moderate.
“However, the more important signal for the Bank of England is coming from domestically generated inflation. Labour market conditions have softened, wage growth is slowing and there remains limited evidence of the kind of second-round inflation effects that would concern policymakers. That should help prevent the energy-driven rise in inflation from becoming entrenched.
“While inflation is likely to remain above the Bank’s 2% target for some time yet, the medium-term outlook is more sanguine. As the temporary impact from higher energy costs fades over 2027 and 2028, inflation should resume drifting lower. Of course, if the energy cost shock does not unwind, inflation would follow a higher-for-longer path.”
Mike Ambery, Retirement Savings Director at Standard Life plc said:
“Today’s fall in inflation to 2.6% is no doubt a welcome boost to Andy Burnham and his new chancellor John Healey, particularly after concerns that price pressures could remain stubbornly high. However, it’s too early to assume inflation is now on a steady downward path. July’s energy price cap increase has yet to feed through into the data, while ongoing global uncertainty and the new government’s spending decisions could still influence the outlook over the coming months.
“With this in mind, today’s figures are unlikely to be enough on their own to trigger a Bank of England rate cut. Policymakers are expected to keep rates on hold next week and will want greater confidence that inflation is moving sustainably back towards the 2% target before changing course. This uncertainty is already feeding through to borrowers, with mortgage rates rising in recent weeks as lenders reassess the outlook for inflation and interest rates.
“For households and those planning for retirement, it’s important to remember that lower inflation does not mean prices are falling, they are simply rising more slowly. The joint impact of higher food, energy and everyday costs can still make long-term saving feel difficult. Pension contributions may seem like an obvious place to cut back, but pausing can mean missing out on employer contributions, tax relief and potential investment growth. Therefore, where affordable, it’s important to stay engaged with your pension, review what you are paying in and maintain or even increase contributions when circumstances allow, all of which can help people build greater financial security over time.”
Scott Gardner, investment strategist at J.P. Morgan Personal Investing said:
“UK headline inflation eased in June, helped by a fall in global energy prices after the Strait of Hormuz reopened in the second half of the month. This is a welcome decline but the renewed escalation between the United States and Iran over recent weeks could keep energy prices elevated for longer than hoped.
“During the month, petrol pump prices fell back from their peak as shipping resumed through the Strait. Even so, the cost of filling up a car remains elevated with fuel prices still 12% higher than a year ago. Food inflation continued to ease in June while services inflation also edged slightly lower. However, that progress was partly offset by rising business output prices where firms have continued to respond to the March energy price spike. There are still signs that cost pressures are gradually filtering through into the economy.
“Looking ahead, despite the fall in petrol prices, inflation could tick up in the coming months as the July energy price cap rise feeds through into the data. With the geopolitical backdrop remaining volatile, the Bank of England will be watching closely to see if there is a renewed energy-driven spike in inflation. For households, cost of living pressures are likely to remain a challenge in the second half of the year, particularly if wage growth stays tepid. This will further concentrate minds in the new Prime Minister’s team which has made tackling the cost of living and affordability a top priority.”
Danni Hewson, AJ Bell head of financial analysis, comments:
“People are acutely aware of the growing cost of living their lives. They’re sensitive to how much they are paying to fill up their cars, the changing price of their weekly shop and the myriad of household bills that need to be paid.
“June was like a breath of fresh air for many cash strapped families who will have noticed that the price at the pump fell significantly, for the first time since the conflict in the Middle East began at the end of February.
“Those with a sweet tooth will have marvelled as the price of jam, sugar and chocolate all eased back along with dairy and oils. Even a slight jump in the cost of BBQ burgers and veggies felt almost manageable as supermarkets began their World Cup discounts.
“As temperatures shot up clothing retailers jumped on the opportunity to persuade us to bag a new pair of shorts, with summer sales something we all expect. But this year found many of the discounts were even more generous as businesses tried to tempt cautious consumers to part with their cash.
“People were still enjoying the benefits of April’s fall in the price cap, thanks to changes brought about by the previous chancellor but those savings are set to be short-lived even with the new government’s VAT cut on domestic electricity.
“The resumption of hostilities in the Middle East has seen wholesale prices of gas and oil jump, with the price of Brent crude now rounding $93 a barrel and motorists already experiencing climbing prices.
“For Andy Burnham it’s a tantalising glimpse of what might have been if geopolitics hadn’t thrown a spanner in the works, with UK inflation in June below that of the EU – although it was above that of both France and Germany.
“For the Bank of England, it’s likely to buy them another month to consider their options. Market expectation of an interest rate hold at next week’s meeting firmed up on release of the data.
“But rate setters will face the real test in September. The vote split and updated forecast will be closely watched for clues about how many hikes may be required to keep the economy in check.”
Josh Pilley, Head of Multi-Asset Research at XPS Group, commented:
“June’s inflation data reflects competing global and domestic dynamics. Lower energy prices and April’s reduction in Ofgem’s energy price cap have helped ease inflation, but this is likely to prove temporary following the 13.5% cap increase. Combined with elevated global energy, food and shipping costs, inflationary pressures are expected to build over the second half of this year.
“Investors are also watching the new government’s early policy decisions for any signs of fiscal easing that could push inflation and gilt yields higher. While the market has taken recent political developments in its stride, the UK’s underlying fiscal challenges remain, and even measures such as the VAT cut on energy bills could increase pressure on gilt markets if they add to government borrowing.
“Despite these inflationary risks, the backdrop has remained favourable for DB pension schemes, supported by higher nominal gilt yields and positive investment returns. Our analysis shows aggregate funding remains comfortably above a £200 billion surplus, as of 20 July 2026. Trustees and sponsors should nevertheless continue to monitor their schemes’ exposure to inflation and interest rate risks, ensuring hedging strategies remain resilient in a potentially more volatile market environment.”
Jeremy Batstone-Carr, European Strategist, Raymond James Wealth Management, said:
“Today’s data confirms that while price pressures remain elevated and above the Bank of England’s 2.0% target, they moderated last month in response to the now clearly temporary peace deal between the US and Iran. The recent re-escalation in hostilities between the warring parties will likely be on the Bank of England’s mind as rate-setters prepare for next week’s meeting, but for now, a notable drop in energy prices over June was sufficient to shave around 0.1% off the headline outcome. An easing in food prices relative to last year’s increase has also helped delivert
“The Bank’s Monetary Policy Committee (MPC) will note that today’s headline drop compares with the Bank’s own 3.1% forecast for June. This is seen as a welcome relief from the uncertainty surrounding the extent to which rising energy prices might penetrate higher prices and wages.
“Today’s figures come hard on the heels of yesterday’s confirmation that domestic labour market conditions remain soft and average earnings growth remains contained. This provides further cheer to the majority on a still sharply divided policy Committee.
“This is not, however, time for complacency. Hostilities in the Persian Gulf and the continued blocking of commercial shipping through the Strait of Hormuz suggests that last month’s inflation hiatus will provide only temporary respite. Price pressures are expected to intensify going forward, ensuring that the Bank of England remains vigilant. Financial markets are fully priced for a 0.25%-point rate hike before year-end and around 50% priced for another.
“There is, however, room for doubt. While the Bank’s primary remit is ensuring inflation is controlled, last week’s economic activity data confirmed that growth remains subdued. With inflation set to rise, households’ real incomes remain under severe pressure. Time will tell whether the newly installed Burnham cabinet can deliver a sustained improvement to the economy’s fortunes, but present unease further complicates the MPC’s calculus.”
Zara Nokes, Global Market Analyst at J.P. Morgan Asset Management (JPMAM), says:
“Lower energy prices have done much of the heavy lifting in bringing inflation down in today’s data but this will prove temporary. From next month, the recent uptick in oil prices combined with July’s increase in the Ofgem price cap will likely push inflation higher. 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. The VAT change appears to apply only to electricity, not gas, and with the Ofgem price cap expected to jump again in October, households are unlikely to feel much real improvement to their bottom line.
“Still, even with energy inflation picking up, this is not an environment in which the Bank of England should be raising rates. A soggy labour market reduces the risk that price pressures become entrenched: with less bargaining power, workers will find it harder to rebuild lost purchasing power through higher pay and are more likely to rein in discretionary spending instead. Further tightening would also risk unnecessarily weighing on activity at a time when domestic policy uncertainty is high.”
Emma Hollingworth, Chief Distribution Officer at LSL Financial Services, says:
“Today’s shock fall in inflation is a welcome surprise and there’s no doubt that it gives the Bank of England some increased breathing room in terms of interest rates.
“But how long that lasts is anyone’s guess. The renewed trouble in the Middle East has stoked fears of another bout of inflation, particularly if the Strait of Hormuz, a key artery in the global trade network, remains under threat. For borrowers, what happens to that shipping lane could have major ramifications on the cost of borrowing this year.
“The longer the conflict goes on, the more those inflationary pressures will build. Some forecasters already see inflation topping 4% by this time next year, which is a very different conversation to the one we were having a few months ago.
“We don’t expect the Monetary Policy Committee (MPC) to move this month. But borrowers hoping for cuts later in the year should temper their expectations. Swap rates have soared since the trouble reignited, which has already led to a round of repricing among lenders.
“A few weeks ago, we thought we finally had some certainty but now it feels as though we are back to square one. It’s at times like this that brokers earn their keep. And this is why it is vital that they are reaching out to anyone with six months or less on their current deal to help them navigate the uncertainty.”
Derrick Dunne, CEO of YOU Asset Management, comments:
“This morning’s reading is a modestly positive step for the pace of price increases but it continues to sit above the Bank of England target ahead of possible delayed-reaction price pressures yet to come later this year.
“A new Bank of England rate decision is due next Thursday. On the face of it, it would seem hard to justify talk of a rate hike at this point, and a further hold is most likely. This is because services inflation remains well above target at 3.6% and the delayed reaction in price signals from the energy market (away from pump prices) will only start to reflect in the data in the latter half of this year.
“At the last rate hike several MPC members cut a remarkably hawkish tone. Today’s inflation figures will perhaps soften this slightly, but the Bank is now so alert to price pressures on the economy that it won’t want to be seen to be soft on rates. This won’t help the mortgage market which has seen some rates tick back up in recent days. Like inflation, market rates will likely stay stubbornly above comfort levels for some time to come.
“Anyone unsure what this could mean for their long-term financial plans should consider speaking with a financial planner.”
James Bentley, Director of Financial Markets Online, commented:
“The UK economy has just delivered a gift-wrapped goodie basket to Number 10 Downing Street. The timing couldn’t be better for a new Prime Minister who pledged yesterday to lead a ‘cost of living’ government.
“A couple of months ago it had seemed that Britain was sliding into an inflationary doom loop. No longer.
“While still higher than both France and Germany, UK inflation is returning to more normal levels faster than expected and easing back from its conflict-induced spike.
“Much of the reset is thanks to June’s sharp fall in fuel prices. Last month average diesel costs fell by 10.7p per litre, and petrol by 2.1p per litre. Such rapid falls ease transport costs and soothe voters’ frayed nerves.
“However in recent days fuel prices have begun to surge back up following the resumption of fighting in the Gulf, so despite the progress we are far from out the woods yet.
“Stripping out the volatile components of the economy like fuel, the core CPI figure offers a clearer picture of where we are – and it hasn’t budged at 2.6%.
“Nevertheless Britons will feel the benefits of rapidly cooling inflation. Annual food price rises slowed to 1.7% in June, down from 2.2% in May – and people will notice this in their weekly shop.
“All this means the Bank of England now has no reason to increase interest rates any time soon. It’s instead likely to watch and wait, and if inflation stabilises further it may hold off on making any rate rises at all this year.
“Cue huge relief for the 1.8 million homeowners who are due to remortgage this year, as well as the thousands of first-time homebuyers who held off during the months of uncertainty.
“This week’s renewed fighting in the Gulf has led interest rate expectations to creep back up, but the confirmation that the jobs market is stable and inflation is settling are both wins for consumers and Britain’s fragile economy.”
Susannah Streeter, Chief Investment Strategist, Wealth Club:
“UK inflation has eased to 2.6% in June, with some of the heat coming out of rapidly rising prices, offering some short respite for households and pushing the threat of interest rate hikes a little further into the distance. The fall was steeper than some forecasts, but it’s still above the bank’s 2% target. Also, it’s not likely to be long before the temperature rises again, with fresh attacks in the Middle East and the Black Sea threatening to keep prices on the boil. Brent crude has raced upwards again, to trade around $93 a barrel, the highest level in six weeks, and this snapshot of prices won’t capture this unwelcome development. Transport costs were the biggest downward driver of the headline rate of inflation, with prices of motor fuel coming down markedly, but with oil prices becoming painfully hot again, it’ll soon show up at the pumps and filter through to other consumer prices via higher freight and energy costs.
“Core CPI, which strips out volatile food and fuel prices and is monitored closely by the Bank of England, also came in at 2.6%. Price rises for goods have slowed quite markedly, but services inflation is proving stickier, falling only a little to 2.6%, above expectations. The pound initially rose before losing ground as investors assessed the conflicting signals for interest rate policy. While the fall in the headline rate is welcome news, stubbornly high core inflation, a sluggish economy and the Middle East crisis are set to keep Bank of England policymakers on alert. However, it still looks likely they’ll adopt another wait-and-see stance at the meeting later this month, with an interest rate hike not fully priced in until close to the end of the year.”
Tim Grimsditch, Managing Director at Unbiased, said:
“The fall in inflation to 2.6% is an encouraging sign that price pressures are easing, but it doesn’t mean the cost of living is getting cheaper. Prices are still rising, just at a slower pace, and many households will continue to feel the impact of higher costs built up over recent years.
“Rather than reacting to one month’s inflation figures, people should focus on their longer-term financial goals. Inflation is only one part of the picture, and decisions around savings, investments, pensions and borrowing should be based on your personal circumstances, not short-term economic movements.
“With continued uncertainty around the wider economy, it’s worth reviewing your finances regularly to make sure your plans remain aligned with your long-term goals. If you’re unsure how changing inflation or interest rates could affect you, seeking financial advice can help you make informed decisions with confidence.”
Nick Watson, Managing Director, UK & Ireland, OCO Global, said:
“Today’s inflation numbers are a reminder of the delicate balance facing the new administration. Cost of living measures, such as removing VAT from electricity bills, may mechanically reduce inflation but have little effect on underlying price pressures. And, with tensions rising again in the Middle East, we are likely to see CPI rise again.
“However, more interesting than the headline inflation stat is the services inflation figure, which has again come in slightly below economist forecasts. That is part of a broader trend of both economists and The Bank of England overestimating the impact of the Middle East conflict on UK inflation.
“Five years ago, we warned that the Bank was underestimating inflationary pressures as we emerged from the pandemic and loose fiscal spending met highly constrained supply. The situation today is different, with private sector wage growth at its lowest since 2020.
“The greater danger now is unnecessarily tight monetary policy that could choke off the investment so critical to achieving growth across the UK’s nations and regions.”
Malvee Vaja, Chartered Financial Planner at Rathbones, says:
“Inflation slowed by more than expected last month, offering a welcome boost to new Prime Minister Andy Burnham and a potential launchpad for his agenda to support households struggling with the cost-of-living squeeze.
“The latest figures came after the announcement that most single bus fares in England will be capped at £2 from January, in a move designed to ease pressure on household budgets.
“The slowdown was driven largely by falling motor fuel prices, particularly diesel, while cheaper chocolate, margarine and beef and steeper clothing discounts also helped ease price pressures.
“Motor fuel prices were supported by a period of relative calm in the conflict between the US and Iran in June, after Washington and Tehran agreed to halt military operations and reopen the Strait of Hormuz, a crucial artery for global oil supplies. The development helped push down prices at the pump.
“But the respite may prove short-lived. The energy price cap rose by 13% in July, increasing the typical household energy bill for millions of households across England, Wales and Scotland. The impact will be reflected in the next set of inflation figures.
“The recent escalation of hostilities in the Middle East has added to the uncertainty, pushing Brent crude back above $90 a barrel. If oil prices remain elevated, higher fuel and transport costs could reignite inflationary pressures.
