UK inflation fell to its lowest rate in 15 months in June, with the Consumer Prices Index (CPI) dropping to 2.6% from 2.8% in May, according to the Office for National Statistics (ONS). This was below the 2.7% expected by most economists and marked the lowest level since March 2025.
The decline was driven by falls in motor fuel prices, particularly diesel, as well as food and non-alcoholic drink prices. Average petrol prices fell by 2.1p per litre between May and June, while diesel dropped by 10.7p per litre. This was the first time petrol prices had eased since the start of the Middle East conflict in late February, which had previously pushed up oil and gas prices.
Food and fuel price details
Food and non-alcoholic drink prices fell by 0.2% between May and June, bringing the annual inflation rate down to 1.7% from 2.2% in May. Despite the monthly drop, overall motor fuel prices remained 21.3% higher year-on-year, reflecting the ongoing impact of the conflict.
ONS chief economist Grant Fitzner said: “A fall in motor fuel prices, particularly diesel, helped ease inflation in June. Food prices fell this month, driven by products including chocolate, margarine and beef. Clothing prices also fell with the start of summer sales, with bigger discounts than last year. The cost of raw materials dipped for the first time since January, mainly due to the lower price of crude oil, while the increase in the costs of goods leaving factories slowed again.”
Government response
The lower-than-expected CPI rate provides some relief for new Prime Minister Andy Burnham, who has made easing the cost of living a top priority. Newly appointed Chancellor John Healey said: “Falling inflation is news families want to hear but there is much more to do to give people the breathing space they need. That is why yesterday we cut VAT on electricity bills and today we’re announcing a £2 cap on bus fares from January. We have chosen to focus on the cost of living in our first week, signalling that concern for working people will be at the heart of everything we do. Both these changes are a win-win. They help keep inflation down while helping people afford the essentials.”
Burnham and Healey announced on Tuesday that electricity bills will be VAT-free from October 1, saving households about £45 a year. The government estimates cutting VAT from 5% to 0% will reduce CPI inflation by around 0.1 percentage points when it takes effect.
Future outlook
Experts warn that the dip may be short-lived. Thomas Pugh, chief economist for RSM UK, said: “The dip in inflation to 2.6% in June is good news for households and should put to bed any lingering chance of an interest rate hike next week. However, this will mark the low point for this year. Rebounding energy prices, a wave of inflation coming through supply chains and a pickup in food prices will probably drive inflation to a peak of 3.3% in the autumn, even after the removal of VAT on energy bills. The obvious risk is that energy prices surge again, given renewed tensions in Iran and a hot summer, which could push inflation markedly higher.”
Charlotte O’Leary, associate economist for the National Institute of Economic and Social Research (NIESR), said the latest figures will be welcomed but warned that the “honeymoon period will be short-lived”. She added: “Next month’s data will uncover the impact of the long-awaited increase in Ofgem’s energy price cap, and with hostilities in the Middle East intensifying, putting wholesale energy prices under pressure again, we anticipate the October cap will remain elevated as we enter cooler months.”
