UK inflation is set to have eased last month in a welcome but temporary boost for Andy Burnham’s incoming Government ahead of a jump in the household energy price cap.
Official figures on June’s Consumer Prices Index (CPI) inflation will be published on Wednesday, during the week that Mr Burnham takes over as prime minister.
Some economists think a sharp drop in petrol and diesel prices will have helped pull the overall inflation rate down to 2.4% in June, from 2.6% in May.
The RAC said the average price of a litre of diesel at UK forecourts dropped by more than 16p from the start to the end of June – the largest since records began in 2000.
This was driven by news of an interim ceasefire deal between the US and Iran to end the conflict, prompting oil prices to fall below pre-crisis levels.
Furthermore, economists are expecting inflation across the UK’s services industry to have slowed in June – although live music events like Harry Styles and Take That concerts may have pushed prices up in certain places.
Household energy inflation is also expected to have taken a step down last month.
But economists are viewing this as temporary relief before Ofgem’s new energy price cap took effect at the beginning of July.
The latest cap was up by 13% compared to the previous rates, meaning the typical household’s gas and electricity bill will increase by £221 to £1,862 a year.
Tensions in the Middle East have also flared up again and Brent crude oil prices have been rising during July.
Sanjay Raja, chief UK economist for Deutsche Bank, said to expect a “bumpy path” ahead.
“While we’re nowhere close to the peaks seen during the height of the Iran conflict, the energy disinflation path remains uncertain,” he said.
He also cautioned that the “spectre of food price rises remain stark”.
Victoria Scholar, head of investment for Interactive Investor, said: “Inflation is likely to peak at around 3.5% later this year, notably above the 2% target, but relatively under control compared to the inflation spike back in October 2022 during the post-Covid reopening period and Russia’s invasion of Ukraine.”
Experts also pointed out that Mr Burnham’s choice of Chancellor, which is not yet known, will be crucial in the longer term as any indication of plans to increase public spending could put pressure on UK inflation.
A group of analysts for Investec said: “The new incumbent of No 11 will have a busy slate of economic indicators to scrutinise in their first week of the job.
“June’s CPI inflation data on Wednesday will certainly be one of the highlights.
“May’s rate of 2.8% was less than expected and our forecast for next week’s number suggests a drop to 2.6%, thanks partly to a fall in petrol prices between May and June.”
