UK Inflation Eases, But Energy Risks Expected To Keep BoE Hawks Alert
- June CPI falls to its lowest since December 2024 - Services and goods inflation continue to moderate - Factory gate prices cool on lower energy costs - Middle East tensions cloud outlook for rate setters
LONDON – The latest figures from the Office for National Statistics showed that energy continues to dictate the pace of UK inflation and is likely to remain the key driver in the months ahead.
Headline CPI rose 2.6% y/y in June, a tenth below expectations and the lowest annual rate since December 2024, easing from 2.8% in May. On a monthly basis, consumer prices increased 0.1%, in line with forecasts and down from the 0.2% rise recorded the previous month.
Grant Fitzner, the ONS's chief economist, said, "A fall in motor fuel prices, particularly diesel, helped ease inflation in June."
Transport inflation slowed to 5.7% y/y from 6.8% in May. The ONS said motor fuels, particularly diesel, made the largest downward contribution to the annual rate.
Food and non-alcoholic beverage prices rose 1.7% y/y, down from 2.2% in May and marking the lowest annual rate in almost two years.
Fitzner said the slowdown was driven by products including chocolate, margarine and beef. He added: "Clothing prices also fell with the start of summer sales, with bigger discounts than last year."
Core CPI, which excludes food, energy, alcohol and tobacco, held steady at 2.6%, above expectations for a 2.5% reading.
The ONS also reported that goods inflation eased to 1.7% y/y from 2.0%, while services inflation edged lower to 3.6% from 3.7%.
ING's James Smith said: "It looks like 'chipflation' has washed up on UK shores; portable device prices spiked by 22% m/m, the biggest monthly change since the series began in 2015. It's possible that's related to the Apple price hikes."
Factory gate prices
Producer price pressures eased sharply during the month.
PPI input prices fell 2.0% m/m in June, significantly more than the expected 0.8% decline and reversing May's upwardly revised 0.6% increase. On an annual basis, input prices slowed to 7.3% from an upwardly revised 9.3%.
Output prices were unchanged on the month after rising 0.3% in May, while annual output inflation slowed to 3.5% from 3.7%.
The ONS said crude oil and refined petroleum products made the largest downward contributions to annual input and output inflation, respectively.
Source: Consumer price inflation from the Office for National Statistics
Short-term respite
The relief for British households may prove temporary, economists cautioned. The renewed conflict in the Middle East and the reclosure of the Strait of Hormuz, a key shipping route for regional oil exports, have already pushed crude prices higher in recent days.
Paul Dales, chief UK economist at Capital Economics, said the lagged impact of higher energy prices is likely to lift inflation above 3.0% in September and to around 3.5% early next year.
"Even so, as long as the latest rebound in energy prices doesn't go much further, the weak labour market will probably prevent second-round effects and mean that inflation falls to 2.0% next year."
MPC on hold
The Bank of England's Monetary Policy Committee is due to announce its next policy decision on 30 July and is widely expected to leave the Bank Rate unchanged at 3.75%.
ING's Smith posited that the latest inflation data provide little justification for tighter policy. "We expect the BoE to hold rates throughout 2026 before looking to cut rates gradually from next spring.
"We've long argued that the bank is more likely to hike rates if inflation is projected to reach 4%. We're still some way below getting there, even with the latest rise in oil and, particularly, natural gas prices."
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- June CPI falls to its lowest since December 2024
- Services and goods inflation continue to moderate
- Factory gate prices cool on lower energy costs
- Middle East tensions cloud outlook for rate setters
By Harry Daniels
LiveSquawk News
@HarryDaniels71
12:00 GMT | 16 July 2026
LONDON – The latest figures from the Office for National Statistics showed that energy continues to dictate the pace of UK inflation and is likely to remain the key driver in the months ahead.
Headline CPI rose 2.6% y/y in June, a tenth below expectations and the lowest annual rate since December 2024, easing from 2.8% in May. On a monthly basis, consumer prices increased 0.1%, in line with forecasts and down from the 0.2% rise recorded the previous month.
Grant Fitzner, the ONS's chief economist, said, "A fall in motor fuel prices, particularly diesel, helped ease inflation in June."
Transport inflation slowed to 5.7% y/y from 6.8% in May. The ONS said motor fuels, particularly diesel, made the largest downward contribution to the annual rate.
Food and non-alcoholic beverage prices rose 1.7% y/y, down from 2.2% in May and marking the lowest annual rate in almost two years.
Fitzner said the slowdown was driven by products including chocolate, margarine and beef. He added: "Clothing prices also fell with the start of summer sales, with bigger discounts than last year."
Core CPI, which excludes food, energy, alcohol and tobacco, held steady at 2.6%, above expectations for a 2.5% reading.
The ONS also reported that goods inflation eased to 1.7% y/y from 2.0%, while services inflation edged lower to 3.6% from 3.7%.
ING's James Smith said: "It looks like 'chipflation' has washed up on UK shores; portable device prices spiked by 22% m/m, the biggest monthly change since the series began in 2015. It's possible that's related to the Apple price hikes."
Producer price pressures eased sharply during the month.
PPI input prices fell 2.0% m/m in June, significantly more than the expected 0.8% decline and reversing May's upwardly revised 0.6% increase. On an annual basis, input prices slowed to 7.3% from an upwardly revised 9.3%.
Output prices were unchanged on the month after rising 0.3% in May, while annual output inflation slowed to 3.5% from 3.7%.
The ONS said crude oil and refined petroleum products made the largest downward contributions to annual input and output inflation, respectively.
The relief for British households may prove temporary, economists cautioned. The renewed conflict in the Middle East and the reclosure of the Strait of Hormuz, a key shipping route for regional oil exports, have already pushed crude prices higher in recent days.
Paul Dales, chief UK economist at Capital Economics, said the lagged impact of higher energy prices is likely to lift inflation above 3.0% in September and to around 3.5% early next year.
"Even so, as long as the latest rebound in energy prices doesn't go much further, the weak labour market will probably prevent second-round effects and mean that inflation falls to 2.0% next year."
The Bank of England's Monetary Policy Committee is due to announce its next policy decision on 30 July and is widely expected to leave the Bank Rate unchanged at 3.75%.
ING's Smith posited that the latest inflation data provide little justification for tighter policy. "We expect the BoE to hold rates throughout 2026 before looking to cut rates gradually from next spring.
"We've long argued that the bank is more likely to hike rates if inflation is projected to reach 4%. We're still some way below getting there, even with the latest rise in oil and, particularly, natural gas prices."