Inflation falls to 2.6% – industry reaction

Latest ONS data has shown that the UK consumer price inflation fell from 2.8% to 2.6% in the year to June, its lowest level since March 2025. The figure was below the 2.7% forecast and marked the third consecutive month in which inflation undershot expectations. Lower petrol and diesel prices, easing food inflation and clothing discounts were the main downward influences.

Motor fuel prices fell 3.1% during June, while food prices declined 0.2% over the month, taking annual food inflation to 1.6%. Clothing and footwear prices fell 1.2%. Services inflation, a measure watched closely by the Bank of England, eased only slightly from 3.7% to 3.6%.

Commenting on the inflation figures for June, ONS Chief Economist Grant Fitzner 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.”

Mike Randall, CEO at 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.”

James Burgess, Head of Commercial at Atradius, said “The relief of a dip in inflation is likely to be short-lived. Bank Rate remains at 3.75%, energy bills rose sharply in July, and volatile oil prices could drive inflation back up. Cost pressures have eased due to lower fuel costs, but they have not disappeared.

“We are also seeing a mixed picture across supply-chain disruption and trade credit insurance claims, underlining how uneven conditions remain. Protecting liquidity and managing customer credit risk will be essential for resilience—and will determine which businesses are best placed to grow when conditions improve.”

Anna Leach, Chief Economist at the Institute of Directors, said “Inflation has weakened once more in June, with food price inflation dropping back notably and energy price inflation dipping as well. This should secure another interest rate hold from the Bank of England next week. However, they will remain on alert to the ongoing disruptive impacts from renewed conflict in Iran, which will push up inflation later in the year.

“Recent policy decisions will apply modest downward pressure to inflation, including various measures to reduce household electricity bills, bus fares and encourage spending over the summer holidays. Measures that reduce the price of electricity relative to fossil fuels by shifting policy costs into general taxation are the right steps needed to hasten electrification and reduce the UK’s vulnerability to fossil fuel price volatility. This process has begun for households and now needs to be extended to businesses too.

“However, these policy decisions will have only temporary effects on inflation, although they may be helpful in tempering inflation expectations. The reality is that inflation is expected to increase further in coming months, and government policy can only alleviate that in the short-term – not undo it. As we head towards the Autumn Budget, policy will need to look to the long-term. An effectively directed state with a business environment which supports investment and employment can help drive a strong economy and better living standards across the country.”

 Suren Thiru, ICAEW Chief Economist, said “June’s slowdown is a false dawn as it may have already been reversed this month with higher energy bills, following Ofgem’s energy price cap rise, likely to have lifted inflation above 3%.

“Though stubborn services and core inflation suggest that the UK remains exposed to the inflationary fallout from the Iran war, weaker wage growth and a sluggish economy will help blunt any second-round effects.

“Renewed US–Iran hostilities have reignited inflation fears, with rising oil prices and supply chain pressures putting the prospect of inflation touching 4% later this year back on the table, despite October’s VAT cut on electricity bills.

“Elevated inflation will likely become a more notable economic headache for the new Chancellor in the coming months by deepening the cost of living crunch, while also squeezing his fiscal headroom, raising borrowing costs, and increasing financial market volatility.

“These benign figures quash any lingering prospect of a July rate rise, particularly as rate-setters may want to assess the impact of any measures announced by the new Prime Minister before deciding whether to tighten policy again.”

Harvir Dhillon, Lead Economist at the British Retail Consortium, said “The drop in both headline and food inflation is good news for households, who are benefitting from summer deals. Food inflation had a particularly notable drop, its lowest in almost two years, with prices falling on the month. This was driven largely by intense competition between supermarkets, trying to entice their customers during a warm spell of weather, despite supply chain pressures. It is vital that the new Government prioritises maintaining this momentum and works with retailers to keep prices down, as any reduction in cost burdens will help keep a lid on prices.

“Retailers are already facing immense financial pressure, squeezed by higher National Insurance, the triple packaging tax, and other input cost increases tied to the conflict in Iran. If retailers are to keep prices affordable for consumers in the long run, the Government needs to take practical steps to lower the everyday cost of doing business. Andy Burnham has taken immediate action to ease pressure on household budgets; he must now look to do the same for businesses, by cutting non-commodity charges on energy, and reducing the employment cost burden to help tackle the youth unemployment crisis.”

Martin Sartorius, Lead Economist, CBI, said “Inflation ticked down slightly in June, broadly in line with our latest projection. We expect this easing will prove temporary. Inflationary pressures are likely to firm over the next few months, reflecting the ongoing impact of the Iran conflict on energy bills and some passthrough to domestic prices. Renewed tensions in the Middle East mean that households and businesses will continue to face an uncertain and volatile outlook as we head towards autumn.

“We anticipate the Bank of England’s Monetary Policy Committee to keep interest rates unchanged when it meets next week, as it maintains a ‘wait and see’ approach to the economy. Although risks remain elevated, a loosening labour market, soft domestic activity, and tighter financial conditions mean that the Committee is unlikely to raise rates in the near term.”

Tamsin Powell, Consumer Finance Expert at Creditspring, said “With today’s inflation figure falling to 2.6%, a drop sounds positive. But it offers a false sense of security. Households are trapped in a compounding cost crisis, paying vastly more for essentials than they did a few years ago.

“This temporary dip also collides with the summer holidays, the most expensive period of the year for parents. Our research shows the school break adds an average of £1,241 to family costs, spanning food, transport, and childcare gaps. In fact, 68% of parents rate summer as their costliest break, completely eclipsing Christmas. As a result, a desperate third of families are now forced to rely on credit, borrowing, or delayed payments just to make it to September.

“Today’s fallen inflation figure looks good on a chart, but it completely detaches from reality on the ground. For families already balancing rising household bills and the cost of getting around, the pressure remains very real.”

John Phillips, CEO of Just Mortgages and Spicerhaart, said “While inflation easing may seem like the first win of the new Burnham premiership, it’s more likely to be a false dawn as improving food and fuel prices mask what is still a really difficult picture. In truth, many economists roughly expected today’s result and are already looking ahead to next month’s reading which will take into account the higher energy price cap, as well as the re-escalation of the conflict in Iran.

“Even with positive news today, a rate cut next week is far from anyone’s prediction. The most likely outcome is another hold, which will be certainly welcome over the other alternative. How long the central bank will keep to this path is yet to be seen, especially given what is happening in the Middle East – which has already helped push up swaps and forced many lenders to reprice.

“For brokers in this current market, there is a real need to dig it out and make sure we’re maximising every opportunity that is in front of us. We know there will be those sitting on their hands and waiting to see what happens in the economy and with a Burnham government – particularly when it comes to stamp duty or any potential property tax. Equally there are still those looking to make moves, that need to sell or are fed up of the crisis fatigue. It means we have to stay on the front foot.”