UK inflation slows below expectations in June

British consumer prices rose by 2.6% y/y in June (the smallest increase since March 2025), down from 2.8% in May and below 2.7% forecast.

So called core inflation, stripped for the most volatile food, energy, alcohol and tobacco prices, was unchanged at 2.6% last month.

Important component of inflation report – services inflation, BoE’s gauge of underlying price pressures, slowed to 3.6% in June from 3.7% in May but came slightly above 3.5% forecast.

Lower than expected inflation in June was mainly driven by drop in oil prices during short ceasefire in the Middle East that provided temporary relief.

Inflation in Britain was the highest in G7 economies in past couple of years, with June’s figure falling below US (3.5%) and Eurozone inflation (2.8%), though optimism is unlikely to last, as renewed hostilities in the region already lifted energy prices and provided fresh boost to consumer prices.

June inflation data add to the Bank of England’s cautious approach and contribute to expectations that the central bank will keep its benchmark interest rate at 3.75% in the next week’s policy meeting as policymakers will continue to assess the impact of the Middle East conflict, considering the latest escalation.