Must read: drop in UK inflation could be temporary
ii’s head of investment rounds up the morning’s big news.
22nd July 2026 09:23
by Victoria Scholar from interactive investor
According to the Office for National Statistics (ONS), the UK CPI inflation rate pulled back to 2.6% in June from 2.8% in May.
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Last month’s improvement was driven by a drop in motor fuel prices, especially diesel. Falling food prices including chocolate, beef and margarine also helped alongside summer sales among retailers who cut the price of clothing. Lower oil prices led to the first reduction in the cost of raw materials since January and petrol prices dropped for the first time since the start of the Iran war.
Although new Chancellor John Healey said this is the ‘news families want to hear’, today’s data could represent the calm before the storm. Inflation is expected to rise again in next month’s data, partly because of July’s 13% increase in the Ofgem energy price cap. That's alongside the backdrop of resurgent Middle East tensions, with US-Iran military strikes pushing Brent crude back above $90 a barrel.
Measures from new Prime Minister Andy Burnham to tackle the cost of living such as the VAT cut on electricity bills and the cap on most bus fares, could help to ease inflation in the near-term by contributing to lower, more affordable prices for consumers in the economy.
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However, and crucially, the inflationary longer-term impact depends on how the government funds these measures. Relying on borrowing could have an upward inflationary impact, while increasing taxes or cutting spending elsewhere would help offset this.
Today’s data strengthens the case for the Bank of England to hold interest rates again at next week’s decision meeting.
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