UK inflation falls to 2.6% in June, benefiting Andy Burnham's plans
UK inflation decreased to 2.6% in June, a drop that supports Prime Minister Andy Burnham's commitment to reducing living costs.
By The Guardian
UK inflation fell to 2.6% in June, according to official figures released on 22 July. This marks a decrease from 2.8% in May, driven largely by lower prices for motor fuel, particularly diesel. The figure was below the 2.7% forecast made by economists.
This decline in inflation is seen as a positive development for Prime Minister Andy Burnham, who has pledged to lower the cost of living for households. The lower inflation rate was attributed to cheaper fuel prices, although it remains above the Bank of England’s target of 2%.
The latest data follows government initiatives aimed at alleviating household expenses, including a reduction in VAT on electricity bills and a £2 cap on single bus fares in England, set to take effect in January.
The Office for National Statistics reported that clothing prices also fell month on month, alongside decreases in transport and food costs, which helped offset modest price increases in other goods and services.
Grant Fitzner, the chief economist at the ONS, noted that food prices dropped, particularly for items like chocolate, margarine, and beef, while clothing prices fell due to summer sales offering larger discounts than the previous year. He added that the cost of raw materials decreased for the first time since January, primarily due to lower crude oil prices.
However, analysts caution that this reprieve may be temporary, as recent tensions in the Middle East have caused Brent crude prices to rise above $90 a barrel. The National Institute of Economic and Social Research (NIESR) anticipates that inflation figures may worsen in the latter half of the year, reflecting a 13% increase in the energy price cap from July and ongoing geopolitical instability.
Chancellor John Healey described the decline in inflation as “news families want to hear,” but acknowledged that more needs to be done to provide financial relief. He reiterated the government’s focus on cost of living issues, highlighting the VAT cut on electricity bills and the forthcoming bus fare cap.
In contrast, Shadow Chancellor Mel Stride attributed the ongoing inflation above the Bank of England’s target to government policies, stating that Labour’s tax increases and borrowing have exacerbated the situation.
Joe Nellis, an economic adviser at MHA, remarked that the drop to 2.6% is a positive sign for the new Prime Minister and Chancellor as they outline their policy agenda. He noted that while inflation has remained above the target, it is significantly lower than earlier predictions, which suggested it could rise to 4% by year-end.
Concerns about potential interest rate increases by the Bank of England may ease, as several committee members have expressed worries about inflation remaining persistently high unless rates are raised from the current 3.75%. Charlotte O’Leary, an associate economist at NIESR, indicated that upcoming data will reveal the impact of the energy price cap increase, with expectations that inflation will begin to rise again from July into early next year.