UK Inflation Slows in Temporary Boost for New PM Burnham

• British inflation cooled by more than expected in June as a brief de-escalation in the Iran war reduced fuel prices. Consumer prices rose by 2.6% year over year, the weakest increase since March 2025 and down from 2.8% in May, compared with economists’ expectations for a smaller decline to 2.7%.
• Motor fuel prices fell month over month for the first time since the US-Iran war began in late February, while manufacturers’ input costs declined by 2.0% from May. Britain’s headline inflation rate was also lower than the 3.5% recorded in the United States and the euro zone’s 2.8%.
• However, the conflict in the Gulf has reignited this month, pushing up energy costs, and analysts said the June inflation reading was likely to prove the low point for the year. The Bank of England (BoE), which has a 2% inflation target, expects inflation to rise to 3% in the third quarter.
• Food prices were 1.6% higher than a year earlier, easing from a 2.1% increase in May. Since taking office on Monday, July 20, 2026, Prime Minister Andy Burnham’s government has announced a cut in tax on energy bills and a lower cap on bus fares as it seeks to ease living costs.
• Underlying price pressures remained relatively muted, with services inflation slowing to 3.6% in June from 3.7% in May, however, this was slightly above economists’ forecast of 3.5%. Core inflation, which excludes food, energy, alcohol and tobacco, held at 2.6%.
• Investors expect the BoE to keep its benchmark interest rate at 3.75% next week as it continues to assess the impact of the Middle East conflict. Financial markets continue to price in one or possibly two 25-basis-point interest rate increases by the end of 2026.

(Source: Reuters)