UK Inflation Cools to 2.6 Percent as Fuel, Food Prices Fall

UK inflation slowed to 2.6 percent in June, its lowest level since March 2025, as lower fuel prices and falling food costs helped ease pressure on household budgets.

The data come as policymakers prepare for the Bank of England’s Monetary Policy Committee meeting next week, when investors will be watching for signals on the outlook for interest rates. The new government in Westminster, led by newly-appointed British Prime Minister Andy Burnham, continues to outline its economic priorities.

The Office for National Statistics (ONS) said on July 22 that the annual Consumer Prices Index inflation rate fell from 2.8 percent in May to 2.6 percent in June and monthly consumer prices rose by 0.1 percent in June, compared with a 0.3 percent increase in the same month a year earlier.

Transport made the biggest contribution to the slowdown in inflation, largely because fuel prices fell during June.

Chancellor John Healey said in a July 21 post on X that the government’s goal is to raise living standards while maintaining sound public finances.

“Our purpose is to put more money into people’s pockets, keep public finances secure, and build an economy that works right across the UK,” he wrote. “This is the way we start to build new hope and good growth in every postcode.”

Fuel, Food Prices

Diesel prices dropped by an average of 10.7 pence per liter between May and June 2026, compared with a decline of just 0.6 pence during the same period in 2025. Diesel averaged 176.4 pence per liter in June.

Petrol prices also declined, falling by 2.1 pence per liter compared with a 0.5 pence decrease a year earlier. Petrol averaged 155.3 pence per liter in June, marking the first monthly decline since the conflict in the Middle East began on Feb. 28.

Motor fuel prices were still 21.3 percent higher than a year earlier, but that represented a slower annual increase than May’s 24.6 percent, which had been the fastest pace since September 2022.

Grant Fitzner, the ONS chief economist, said in a July 22 post on X that falling fuel prices helped ease inflation in June.

“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,” he added.

In a follow-up post, he said that costs earlier in the supply chain also eased.

“The cost of raw materials dipped for the first time since January, mainly due to the lower price of crude oil, while the increase in the costs of goods leaving factories slowed again,” he said.

Food and non-alcoholic drink prices rose 1.7 percent over the year to June, the ONS said, down from 2.2 percent in May and the lowest annual rate since August 2024. Prices for food and drink fell 0.2 percent between May and June this year, compared with a 0.3 percent rise over the same stretch in 2025.

The UK inflation rate remained above that of several major European economies despite the latest slowdown. The ONS said it was below the European Union average of 2.9 percent but remained higher than France’s 2 percent and Germany’s 2.4 percent in June.

Economic Outlook

Despite June’s softer inflation reading, economists cautioned that the improvement may be short-lived.

Kallum Pickering, chief economist at investment bank Peel Hunt, said in a July 22 post on X that the lower headline figure was encouraging but unlikely to change the Bank of England’s near-term policy outlook.

Financial markets are expecting the Bank of England to leave interest rates unchanged at its July meeting and raise them in September, Pickering said, although he believes the central bank will keep rates on hold then as well.

He also warned that the June figures largely reflected earlier price movements and may not capture the effects of renewed tensions in the Middle East.

Commodity prices have started rising again as the conflict has intensified, while “July’s energy-price-cap increase will lift household bills,” he said.

Pickering said inflation is likely to move back above 3 percent during the second half of 2026 as higher energy costs feed through to consumers, adding that “UK underlying fundamentals remain disinflationary, there is scope, in our view, for further positive surprises even as price momentum picks up.”