UK inflation fell to 2.6% in the year to June, a 15-month low driven by lower motor fuel prices, especially diesel. John Healey said the drop is “news families want to hear”, while the reading stayed above the Bank of England’s 2% target.
The latest figures also show food prices helping to pull the rate down. Pizza and quiches fell by 6.7%, margarine dropped by 1.9%, and beef and veal price inflation eased from 9.4% in May to 5.1% in the year to June.
Bank of England and rates
The Bank of England uses the inflation rate when setting interest rates, so the June reading matters for households with mortgages and savings. Most economists expect the Bank to keep rates on hold at 3.75% next week, which would leave borrowing costs unchanged for now.
Mel Stride accused the government of “stoking inflation”, setting out the political split over the figures. Harvir Dhillon said the slowdown in food price inflation was “driven largely by intense competition between supermarkets” as they tried “to entice their customers during a warm spell of weather, despite supply chain pressures”.
UK inflation and energy bills
The fall does not mean prices are moving back down. It means the pace of price increases has slowed, and the relief now showing in fuel and food could prove brief if higher energy bills start feeding into the numbers later in the year.
That is why the next move for borrowers and savers is shaped less by the June drop itself than by what follows it. Inflation is expected to rise above 3% later in the year, and how far energy bills push it beyond that point is the part that still carries the most weight for interest-rate expectations.
