UK inflation falls to 2.6% as fuel and food prices ease

UK inflation fell to a 15-month low in June, providing an early boost for the new government and offering further encouragement that price pressures are easing, although economists warn the decline may prove temporary.

Figures published by the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) rose by 2.6% in the 12 months to June 2026, down from 2.8% in May and below economists’ expectations of 2.7%. It is the lowest annual CPI inflation rate since March 2025.

The broader Consumer Prices Index including owner occupiers’ housing costs (CPIH) also eased, falling from 3.0% to 2.8%, its lowest level since September 2024.

On a monthly basis, CPI increased by 0.1% in June, compared with 0.3% in the same month last year, while CPIH rose by 0.2%.

The ONS said transport costs and food and non-alcoholic beverages made the largest downward contributions to inflation, with lower fuel prices playing a particularly significant role.

Average petrol prices fell by 2.1p per litre between May and June, while diesel prices dropped by 10.7p per litre as global oil prices eased. Food prices also declined during the month, driven by lower prices for products including chocolate, margarine and beef, while summer clothing sales also helped reduce inflationary pressures.

Grant Fitzner, Chief Economist at the ONS, said: “A fall in motor fuel prices, particularly diesel, 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.

“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.”

Core inflation remained more persistent. Core CPI, which excludes energy, food, alcohol and tobacco, held steady at 2.6%, while services inflation eased marginally from 3.7% to 3.6%.

The latest figures represent the first major economic data release since Prime Minister Andy Burnham took office and come just a day after the government announced the removal of VAT on household electricity bills from October, a measure expected to reduce inflation by around 0.1 percentage points while saving households approximately £45 a year.

Chancellor John Healey welcomed the figures, saying: “Falling inflation is news families want to hear but there is much more to do to give people the breathing space they need.

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

“We have chosen to focus on the cost of living in our first week, signalling that concern for working people will be at the heart of everything we do.

“Both these changes are a win-win. They help keep inflation down while helping people afford the essentials.”

Despite the encouraging figures, economists cautioned that inflation is expected to rise again later this year as higher energy costs feed through into household bills.

Thomas Pugh, Chief Economist at RSM UK, said: “The dip in inflation to 2.6% in June is good news for households and should put to bed any lingering chance of an interest rate hike next week.

“However, this will mark the low point for this year.

“Rebounding energy prices, a wave of inflation coming through supply chains and a pickup in food prices will probably drive inflation to a peak of 3.3% in the autumn, even after the removal of VAT on energy bills.”

The latest inflation figures were also welcomed by the asset finance sector, where businesses continue to focus on investment despite ongoing economic uncertainty.

Mike Randall, CEO of Simply Asset Finance, said: “A fall in inflation is encouraging, but the direction of travel remains far from certain. Businesses will be hoping it’s the start of a sustained easing, rather than another temporary shift.

“On the ground, most business owners aren’t waiting for economic indicators to tell them whether they can succeed, but are simply getting on with it. The bigger challenge they face is whether they have the means and funds to invest in growth.

“The recent expansion of the Growth Guarantee Scheme is a positive step towards solving that, but there’s still plenty to be done. With a new Chancellor settling into No. 11, the coming months should be about turning intent into action. Improving access to finance for SMEs will be a key part of that, because businesses don’t need more promises, but the tools to invest, grow and create jobs.”