UK inflation fell to its lowest rate in 15 months in June, dropping to 2.6% from 2.8% in May, according to the Office for National Statistics (ONS). This was below the 2.7% rate that most economists had expected and the lowest level since March 2025.
Transport and food drive inflation down
The biggest downward pull on overall inflation came from transport, food and non-alcoholic drinks. Average petrol prices declined by 2.1p per litre between May and June, while diesel prices dropped by 10.7p per litre. This marked the first time petrol prices had eased since the start of the Middle East conflict at the end of February, which had sent oil and gas prices soaring.
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.
Impact on cost of living
Despite the monthly decline, overall motor fuel prices remained 21.3% higher in the year to June, indicating that the conflict has driven up the cost of living in the UK. 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.”
Government response
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.”
Prime Minister Andy Burnham and Chancellor Healey announced on Tuesday that electricity bills will be VAT-free from October 1, saving households about £45 a year. Cutting VAT from 5% to 0% is estimated to reduce CPI inflation by around 0.1 percentage points when it comes into effect, according to the Government.
