UK inflation slowed more than expected in June, giving new Prime Minister Andy Burnham an early economic boost as easing price pressures offered some relief from the country’s prolonged cost of living crisis.
Consumer prices rose by 2.6% year-on-year in June, down from 2.8% in May, marking the lowest inflation rate since March 2025, according to the Office for National Statistics (ONS).
The reading came in below economists’ forecast of 2.7%, supported by lower petrol prices following a temporary easing of tensions in the Middle East and a decline in energy costs.
Analysts, however, cautioned that the improvement could prove temporary, as renewed geopolitical tensions have pushed energy prices higher, increasing the risk of fresh inflationary pressures in the coming months.
“A fall in motor fuel prices, particularly diesel, helped ease inflation in June,” ONS Chief Economist Grant Fitzner said.
“The cost of raw materials fell for the first time since January, largely due to lower crude oil prices, while the increase in factory gate prices continued to slow.”
The latest figures put UK inflation below that of the United States, where inflation stood at 3.5%, and the euro zone, where it was 2.8%.
The UK remains particularly exposed to higher energy costs because of its reliance on imported natural gas, leaving households and businesses more vulnerable to fluctuations in global energy prices.
Although inflation has eased, it has remained above the Bank of England’s 2% target for much of the past five years. The central bank has warned that inflation could rise to 3% in the third quarter.
Services inflation, a key measure closely monitored by the Bank of England for signs of underlying price pressures, eased to 3.6% in June from 3.7% in May. However, the figure was slightly higher than economists’ forecast of 3.5%.
Investors widely expect the Bank of England to keep its benchmark interest rate unchanged at 3.75% next week as policymakers continue to assess domestic inflation trends and the impact of geopolitical developments.
Yael Selfin, Chief Economist at KPMG, said the latest inflation data reinforced the case for the central bank to maintain a cautious monetary policy stance, noting that underlying inflationary pressures remained relatively contained despite weak domestic demand.
Some members of the Bank of England’s Monetary Policy Committee, who voted to raise borrowing costs in June, remain concerned that inflation could continue to exceed the central bank’s 2% target.
Financial markets on Tuesday priced in the possibility of one or two quarter-point interest rate increases by the end of 2026.
Data released last week showed that the British economy performed slightly better than expected in May, providing further support for Burnham’s government, which took office on Monday.
Since assuming office, the government has announced measures to reduce household energy bills and lower the cap on bus fares as part of broader efforts to ease the cost of living burden.
Separate data released on Tuesday also pointed to a stabilising labour market and lower government borrowing in June, reinforcing hopes that the UK’s economic outlook is gradually improving despite ongoing global uncertainties.
Ojo Triumph
