UK inflation falls to 15-month low in June thanks to lower petrol prices

Inflation in the UK fell to 2.6 percent in June; This was the lowest rate in 15 months as household take-up of food and fuel prices fell with early support from cost-of-living focus Andy Burnham.

According to the Office for National Statistics (ONS), the Consumer Price Index (CPI) rate was down from 2.8 per cent in May, the lowest level since March 2025, and below the 2.7 per cent rate most economists expected.

Despite the increase, analysts expect it to be mostly a short-term relief; Further increases in inflation are also predicted to have an impact as the year progresses – especially if the Iran war continues, with oil prices rising 20 percent last month to over $93 on Wednesday.

Additionally, while the energy price cap will come into effect from July, Matt Swannell, chief economic advisor at forecasting organization ITEM Club, suggested Andy Burnham’s removal of VAT from energy bills starting in October “will be more than offset by the impact of higher wholesale energy costs”.

Even so, the lower-than-expected CPI rate is expected to provide some relief to the new prime minister, Mr Burnham, who has prioritized efforts to ease the cost of living.

According to the ONS, the biggest decline in overall inflation last month came from transport, food and non-alcoholic drinks.

Between May and June, average petrol prices fell by 2.1p per litre, while diesel prices fell by 10.7p per litre.

This meant oil fell for the first time since the conflict in the Middle East began at the end of February; This has caused oil and gas prices to rise and prices at the pumps to rise.

But even though prices were lower on a monthly basis, overall motor fuel prices remained 21.3 percent higher through June; This is a sign that conflict is increasing the cost of living in the UK.

Food and non-alcoholic beverage prices fell by 0.2 percent between May and June, while the annual inflation rate decreased from 2.2 percent in May to 1.7 percent.

ONS chief economist Grant Fitzner said: “The fall in motor fuel prices, particularly diesel, helped reduce inflation in June.

“Food prices fell this month due to the impact of products such as chocolate, margarine and beef.

“With the start of summer sales, clothing prices also dropped with larger discounts compared to last year.

“Raw material costs fell for the first time since January, mainly due to the fall in the price of crude oil, while the increase in the cost of goods leaving factories also slowed down again.”

Newly appointed Chancellor John Healey said: “Falling inflation is the news families want to hear, but there is more to do to give people the breathing space they need.

“That’s why yesterday we cut VAT on electricity bills and today we’re announcing a £2 cap on bus fares from January.

“We chose to focus on the cost of living in our first week, signaling that concerns for working people will be at the heart of everything we do.

“Both of these changes are a win-win situation. They help keep inflation low while helping people meet basic needs.”

Mr Burnham and Mr Healey announced on Tuesday that electricity bills will be VAT-free from October 1, saving households around £45 a year.

According to the government, the reduction of VAT from 5 percent to 0 percent is estimated to reduce CPI inflation by approximately 0.1 percentage points when it comes into force.

Examining the ONS data in more detail, Wealth Club’s chief investment strategist Susannah Streeter said pressure to raise interest rates would continue, but the Bank of England was not expected to do so next week.

“Core CPI, which excludes volatile food and fuel prices and is closely monitored by the Bank of England, was also at 2.6 per cent. Rises in goods prices have slowed considerably, but services inflation is becoming more stable, falling to 2.6 per cent, only slightly above expectations,” Ms Streeter said.

“While the cut in headline interest rates is welcome news, persistently high core inflation, a sluggish economy and the Middle East crisis are set to keep Bank of England policymakers on their toes. However, they still look likely to adopt another wait-and-see attitude at this month’s meeting, with a rate hike not fully priced in until the end of the year.”

James Bentley, director of Financial Markets Online, agreed, saying the decision not to raise interest rates would be “a huge relief for the 1.8 million homeowners who have or will remortgage this year”, while IG’s chief market analyst Chris Beauchamp pointed out there was “little point in increasing interest rates if it would increase pressure on the employment picture”.

Additional reporting by PA