The Office for National Statistics reported that consumer price index (CPI) inflation stood at 2.6 per cent in the year to June, down from 2.8 per cent in May and below analysts' forecast of 2.7 per cent. Core CPI inflation, which excludes volatile food and energy prices, also came in at 2.6 per cent.
Stubbornly Above Target
Despite the decline, inflation remains stubbornly above the Bank of England's two per cent target, underscoring the government's ongoing struggle to address the cost of living crisis. Most City analysts and the Bank itself expect price growth to creep back towards three per cent later this year, according to City AM.
Economic Pressures Ahead
Business tax increases following Rachel Reeves' debut Budget, combined with disruption to vital oil trade flows caused by the blocking of the Strait of Hormuz amid the Iran conflict, have unsettled the UK economy and left households vulnerable to steeper price rises. Prior to her departure from government, Reeves unveiled a summer savings package comprising subsidies for children's meals and travel, alongside a continued freeze on fuel duty beyond September. Analysts indicated the measures would help soften the blow of the inflation shock.
New Government Measures
Since Andy Burnham entered Downing Street with John Healey serving as Chancellor, ministers have been pushing to 'reprioritise' public spending to ease cost of living pressures. Burnham announced that VAT would be removed from household electricity bills from October this year, a move that could shave around 0.1 percentage points off inflation. The Prime Minister has pledged to introduce a range of additional policies aimed at easing the financial burden on households.
Criticism and Scrutiny
However, the country's seventh leader in 10 years has already faced criticism over making 'unfunded' promises. Darren Jones, who served as Sir Keir Starmer's chief secretary, took aim at Burnham for claiming that scrapping the digital ID scheme would foot the bill for the energy tax cut. Bank of England officials are likely to scrutinise Burnham's proposals closely, as well as his response to the energy price shock triggered by the Iran war.
Interest Rate Outlook
The Bank is widely anticipated to hold interest rates at 3.75 per cent at its forthcoming meeting on 30 July. Short-term gilt yields indicate that markets are pricing in at least two interest rate rises as the UK continues to grapple with persistently high inflation.
