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Food price inflation is increasing at its slowest pace in nearly two years, with prices of certain staples like margarine and sugar actually decreasing. According to industry experts, competitive pricing among supermarkets has contributed to lower costs as retailers seek to attract shoppers with summer promotions.
Overall inflation in the UK declined to 2.6% in the 12 months leading up to June, down from 2.8% the previous month, according to the Office for National Statistics (ONS). This reduction is primarily attributed to falling prices of fuel and food. The drop in inflation figures is a positive development for the new Prime Minister Andy Burnham and his administration. However, analysts caution that this decline may be short-lived, as expected increases in energy prices in July are likely to push inflation higher once again.
Fuel prices, particularly diesel, played a significant role in easing inflation, with pump prices falling for the first time since the onset of the conflict in the Middle East. Additionally, the summer sales took a toll on clothing prices, which also decreased due to retailers offering deeper discounts compared to last year. Food and non-alcoholic beverage inflation saw a 0.2% month-to-month dip, driven largely by decreases in sugar, chocolate, and confectionery prices.
When looking at year-on-year figures, the inflation rate for beef and veal slowed from 9.4% in May to 5.1% in June. Similarly, prices for edible offal — including items such as liver, kidneys, and tongue — eased from 9.2% to 3.4% during the same period. Other food items, like pizza and quiches, declined by 6.7%, and margarine prices fell by 1.9% over the year to June. The ONS notes that food inflation often lags behind other sectors by up to 13 months due to supply chain effects, meaning that potential impacts from geopolitical tensions, such as the war in Iran, may still be forthcoming.
Fuel prices at the pumps dropped in June following an agreement between the US and Iran to pause military actions and reopen the strategic Strait of Hormuz. However, recent renewed hostilities and a rise in crude oil prices suggest that inflationary pressures could increase again in the near future. The British Retail Consortium (BRC) attributes the reduction in food inflation to intense competition among supermarkets. BRC economist Harvir Dhillon emphasized that for retailers to maintain affordable prices for consumers, the government must implement measures to reduce the everyday costs of running businesses. He added, “Andy Burnham has taken immediate action to ease pressure on household budgets; he must now look to do the same for businesses.”
Although the current inflation rate remains above the Bank of England’s 2% target, Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, believes an interest rate increase during the bank’s upcoming meeting is unlikely. Thiru explained that policymakers might prefer to evaluate the effects of initiatives introduced by the new Prime Minister before considering further monetary tightening. She cautioned that rising inflation is expected to create more challenges for Chancellor Healey, particularly by limiting fiscal flexibility, increasing borrowing costs, and causing volatility in financial markets.
KPMG’s chief economist Yael Selfin suggested that the June inflation figure is probably the lowest the UK will see this year. She highlighted that higher energy bills, driven by a rise in the energy price cap set by Ofgem, will likely cause inflation to climb again. Selfin warned, “Although the impacts from the initial energy shock have so far been relatively limited, if energy prices remain high for longer, second-round effects risk feeding through into wages and more broadly across the economy.”
Sarah Coles, head of personal finance at AJ Bell, provided some insights into the potential implications of these economic trends for consumers. She noted that markets currently anticipate only one interest rate hike by the end of 2026, likely in September, with the possibility of another in February. Coles advised savers to stay alert for competitive savings rates and act quickly to take advantage of offers. On the other hand, she delivered less optimistic news for prospective mortgage borrowers, stating that mortgage rates, which had been generally falling, recently experienced a significant rise
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