Consumer prices increased by 2.6% year-on-year in June, marking the slowest rise since March 2025, down from 2.8% in May, according to the Office for National Statistics (ONS) on Wednesday (July 22).
A Reuters survey of economists projected an annual inflation rate of 2.7% for June, as the spike in energy prices triggered by the Iran conflict subsided during the month after a ceasefire was announced. Nevertheless, hostilities have resumed, resulting in higher energy expenses.
“A decrease in motor fuel costs, especially diesel, contributed to lower inflation in June,” said ONS Chief Economist Grant Fitzner.
“The costs of raw materials fell for the first time since January, largely due to declining crude oil prices, while the rise in factory gate prices also slowed.”
In June, British inflation was lower than in the United States and the eurozone, where rates stood at 3.5% and 2.8%, respectively.
The surge in energy prices has significantly impacted Britain due to its dependency on imported natural gas.
For the past five years, inflation has mostly remained above the Bank of England’s 2% target. The central bank has indicated that inflation may rise to 3% in the third quarter.
Wednesday’s data indicated that service inflation, closely monitored by the BoE for insights into underlying price pressures, decreased to 3.6% in June from 3.7% in May, slightly exceeding economists’ predictions of 3.5%.
Investors anticipate the BoE will maintain its benchmark interest rate at 3.75% in the coming week while it evaluates the implications of the Middle East conflict.
“Today’s data reinforces the case for the Bank of England’s cautious stance, as underlying inflationary pressures remain relatively subdued amidst weak domestic demand,” remarked Yael Selfin, chief economist at KPMG.
Some BoE policymakers who supported raising borrowing costs in June are concerned about the risk of inflation consistently exceeding the 2% target.
Financial markets on Tuesday suggested that one or possibly two quarter-point interest rate hikes could occur by the end of 2026.
ONS data released last week provided a slightly more optimistic view of Britain’s economy in May, offering some relief to Burnham, who assumed office on Monday.
Since his appointment, his government has announced a reduction in the tax on energy bills and a lowered cap on bus fares.
Figures published on Tuesday indicated signs of stabilization in the labor market in recent months, along with a decrease in government borrowing in June.
