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UK inflation drops to 14-month low
Consumer inflation in the United Kingdom slowed to 2.6% in June 2026, the lowest level in 14 months, according to data from the Office for National Statistics, despite market expectations of 2.7%. The decline in inflation was driven by a 3.1% monthly decrease in petrol and diesel prices, which led to a reduction in fuel inflation from 24.6% to 21.3%. Food and beverage price inflation also fell from 2.2% to 1.7%, and maritime transport inflation dropped from 11.9% to 5.7%. However, airfares and hotel prices increased, while inflation in the services sector remained steady at 2.6%. Despite this decline, the "Capital Economics" institution anticipates inflation will rise again above 3% in September, likely reaching around 3.5% by early 2027, due to the effects of rising energy prices—particularly following a hike in the energy price cap set by the UK energy regulator. To support efforts to curb inflation, the British government announced a VAT reduction on utility services aimed at lowering overall inflation by about 0.2 percentage points for a year, starting in October. The Bank of England expects inflation to reach 3% in the third quarter, with the possibility of holding interest rates steady at 3.75% at the upcoming meeting, as it assesses the impact of escalating tensions in the Middle East on the market.
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