UK inflation slowed to 2.6% in June 2026, down from 2.8% in May, according to the Office for National Statistics. This was the lowest inflation rate recorded in 14 months.
The figure also came in below economists’ consensus forecast of 2.7%.
Lower Fuel Prices Push Inflation Down
Falling petrol and diesel prices were the main reason inflation eased in June. Fuel prices declined by 3.1% during the month.
As a result, annual fuel inflation dropped from 24.6% to 21.3%. Lower fuel costs reduced the headline Consumer Prices Index inflation rate by around 0.1 percentage point.
Food Inflation Falls to Its Lowest Since 2024
Food and non-alcoholic drink inflation also continued to slow. The rate fell from 2.2% in May to 1.7% in June.
This was the lowest level of food inflation recorded since August 2024.
Transport costs showed mixed trends. Sea transport inflation declined sharply from 11.9% to 5.7%. However, airfare inflation increased from 0.9% to 3.1%.
Hotel inflation also rose from 3.1% to 3.8%. Meanwhile, restaurant inflation remained relatively stable at 4.5%, compared with 4.4% in the previous month.
Core and Services Inflation Remain Elevated
Core inflation, which excludes volatile food and energy prices, remained unchanged at 2.6%.
Services inflation eased slightly from 3.7% to 3.6%. Although the decline was modest, services inflation remains an important measure for the Bank of England when assessing domestic price pressures.
UK Inflation Could Rise Again
Capital Economics expects UK inflation to move above 3% in September. The research firm believes the delayed effects of higher energy prices could place renewed pressure on household costs.
It also forecasts that inflation could reach approximately 3.5% in early 2027.
One important factor is the 13.5% monthly increase in Ofgem’s utility price cap in July. Higher regulated energy prices could therefore reverse some of the recent progress in bringing inflation down.
VAT Cut Could Reduce Price Pressures
The UK government announced a reduction in VAT on utility prices on Tuesday.
The measure is expected to lower CPI inflation by approximately 0.2 percentage points for 12 months, beginning in October.
This policy could partially offset the effect of rising energy bills and provide some relief to British households.
Bank of England Expected to Hold Interest Rates
The Bank of England has previously indicated that UK inflation could reach 3% during the third quarter.
Despite the lower-than-expected June inflation figure, investors expect the central bank to keep its benchmark interest rate unchanged at 3.75% next week.
Policymakers are continuing to assess domestic inflation pressures and the wider economic impact of the conflict in the Middle East.
UK Economy Shows Signs of Improvement
Separate data from the Office for National Statistics showed that the UK economy performed slightly better in May.
The figures may provide some early relief for new Prime Minister Andy Burnham, who took office on Monday. However, the outlook remains uncertain as the government faces persistent inflation risks, elevated energy costs and cautious monetary policy.
