Inflation eased more than forecast in June, but the outlook for the rest of the year is far from settled
UK inflation fell more than forecast in June, easing pressure on the Bank of England ahead of its 30 July interest rate decision.
The Consumer Prices Index (CPI) rose by 2.6% in the 12 months to June, down from 2.8% in May, according to the Office for National Statistics (ONS).
The Consumer Prices Index (CPI) rose by 2.6% in the 12 months to June 2026, down from 2.8% in the 12 months to May 2026.
— Office for National Statistics (ONS) (@ONS) July 22, 2026
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The Bank of England targets 2% inflation and is due to meet next week to set the base rate, currently at 3.75%. Several members of the monetary policy committee (MPC) had signalled concern about persistently above-target inflation, raising the prospect of a further increase. June's softer reading is likely to temper those calls, with analysts now broadly expecting the MPC to hold rates at its upcoming meeting.
"Inflation ticking down again is a reminder that in today's geopolitical climate, mortgage rates don't stay predictable for long," said Ben Thompson (pictured right), director of home moving strategy at Mortgage Advice Bureau. "This drop puts the Bank of England's next move back in the spotlight - albeit we currently expect no further increase to the base rate, as domestic economic performance still remains weak."
The ONS attributed the monthly decline primarily to lower fuel and food prices. "A fall in motor fuel prices, particularly diesel, helped ease inflation in June," said Grant Fitzner, chief economist at the ONS. "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."
Economists had forecast a fall to 2.7%, making June's outturn a modest beat. Core CPI, which excludes energy, food, alcohol and tobacco, held steady at 2.6%. The CPI goods annual rate eased from 2% to 1.7%, while services inflation edged down from 3.7% to 3.6%. On a monthly basis, CPI rose 0.1%, compared with 0.3% in June 2025.
The data offer a short-term reprieve for Prime Minister Andy Burnham, who has made reducing the cost of living a central policy commitment. However, analysts warn that inflation is likely to rebound in July after the Ofgem energy price cap rose by 13% at the start of this month. Burnham has separately announced a VAT cut on electricity bills from October.
"This fall in inflation is a surprise, and likely to be a temporary respite, given the forecasts for the rest of the year," said Alex Beavis (pictured right), interim director of banking at LHV Bank. "Those inflation worries are being driven by the conflict in Iran, showing how events thousands of miles away can have a very real impact on the pounds in your pocket. Inflation is being targeted by the new Prime Minister and Chancellor, with measures such as scrapping VAT on electricity bills already announced."
However, affordability pressures on households are expected to persist. "While it's encouraging to see inflation move closer to the Bank of England's 2% target, household affordability remains under pressure," said Nathan Emerson (pictured right), chief executive of Propertymark.
"Renewed international political tensions could still impact the wider economy, particularly over the summer months. Although today's figures mark a third consecutive fall, many households will likely continue to approach their finances with caution as not to overstretch their levels of incomings vs outgoings on key household items moving forward."
For brokers advising clients on timing, Thompson cautioned against passivity. "Whether you're a first-time buyer or a remortgager coming off a cheaper fixed deal, it's worth exploring options sooner rather than waiting later to see what happens," he said. "For both groups, locking in a rate you're comfortable with now is often a smarter move than waiting on the chance of a better one later."
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