- Drop. UK CPI fell to 2.6% in June from 2.8% in May — its lowest reading since March 2025 and below the EU’s 2.9% average for the same month.
- Fact. Diesel pump prices fell 10.7 pence per litre, making motor fuels the single largest downward contributor; food inflation eased to 1.7%, the lowest since August 2024.
- Stake. Services inflation held at 3.6% — unchanged from May — keeping the Bank of England cautious about rate cuts despite the headline progress, with the next decision due August 7.
The Office for National Statistics reported on July 22 that the Consumer Prices Index rose 2.6% in the twelve months to June 2026, down from 2.8% in May. The CPIH measure — which includes owner-occupiers’ housing costs — fell to 2.8% from 3.0%. On a monthly basis, the CPI rose just 0.1% in June, against 0.3% in June 2025, signalling a meaningful deceleration in the pace of price growth compared with a year earlier.
What Drove the Fall
Transport inflation led the decline, slowing from an annual rate of 6.8% to 5.7%, with diesel prices dropping 10.7 pence per litre and petrol by 2.1 pence. Food and non-alcoholic beverages rose just 1.7% year-on-year — the softest reading since August 2024 — as supermarkets trimmed prices on staples under competitive and margin pressure. Clothing and footwear also turned negative, at -0.5% against +0.2% in May. All-goods inflation fell to 1.7% from 2.0%.
The ONS noted that the UK’s 2.6% reading placed it below the EU’s aggregate rate of 2.9% but above France at 2.0% and Germany at 2.4%, suggesting Britain’s energy price pass-through has been faster than Germany’s but slower than France’s partially regulated market allows. The contrast with the ECB’s situation — holding at 2.25% while flagging that the energy shock is not yet fully priced — illustrates divergent inflation dynamics across the Channel.
The Services Problem
The figure Bank of England policymakers watch most closely — services inflation — remained stuck at 3.6%, unchanged from May. Core CPIH, excluding energy, food, alcohol and tobacco, also held flat at 2.8%. Both measures suggest that domestic price pressures tied to wages and rents have yet to ease materially, regardless of what is happening to petrol prices and food. At its June meeting, the Monetary Policy Committee voted 7–2 to hold Bank Rate at 3.75%, with two members pressing for a hike to 4%.
What Comes Next
The June data gives the MPC modest cover to hold without being accused of passivity, but does little to accelerate the case for cuts. Markets had been pricing in one reduction before year-end; services inflation staying flat dilutes that expectation. The Bank’s next scheduled decision falls on August 7, when it will also publish a fresh Monetary Policy Report. If July’s energy prices — elevated relative to a year ago, partly due to Iran-driven oil volatility — feed through to a higher July CPI print, the August meeting could prove more contentious than June’s.