UK inflation is expected to have fallen to 2.4% in June, down from 2.6% in May, providing a temporary but welcome boost for incoming Prime Minister Andy Burnham. The official Consumer Prices Index (CPI) data will be published on Wednesday, during the week Burnham takes office.
Petrol and Diesel Prices Drive Down Inflation
Economists attribute the expected decline to a sharp drop in petrol and diesel prices. The RAC reported that the average price of a litre of diesel fell by more than 16p from the start to the end of June, the largest monthly drop since records began in 2000. This was driven by an interim ceasefire deal between the US and Iran, which pushed oil prices below pre-crisis levels.
Services Inflation and Energy Costs
Services inflation is also expected to have slowed, though live music events like Harry Styles and Take That concerts may have kept prices elevated in some areas. Household energy inflation is anticipated to have eased in June, but this relief is seen as temporary. Ofgem's new energy price cap took effect in July, increasing by 13% and raising the typical household's annual gas and electricity bill by £221 to £1,862.
Future Outlook: Bumpy Path Ahead
Sanjay Raja, chief UK economist at Deutsche Bank, warned of a “bumpy path” ahead, noting that “while we’re nowhere close to the peaks seen during the height of the Iran conflict, the energy disinflation path remains uncertain.” He also cautioned that the “spectre of food price rises remain stark.” Victoria Scholar, head of investment at Interactive Investor, predicted that inflation “is likely to peak at around 3.5% later this year, notably above the 2% target, but relatively under control compared to the inflation spike back in October 2022.”
Political Implications
Experts highlighted that Burnham's choice of Chancellor will be crucial, as any indication of plans to increase public spending could put upward pressure on inflation. Analysts at Investec noted that “the new incumbent of No 11 will have a busy slate of economic indicators to scrutinise in their first week of the job,” and forecast a drop to 2.6% for June, partly due to falling petrol prices between May and June.
