UK inflation is anticipated to have slowed last month, offering a brief respite for Andy Burnham’s incoming government ahead of an expected increase in the household energy price cap.
Official figures for June’s Consumer Prices Index (CPI) are due to be released on Wednesday, a few days after Mr Burnham’s assumption of the prime ministerial role.
Economists suggest a significant decline in petrol and diesel costs likely contributed to an overall inflation rate drop to 2.4 per cent in June, down from 2.6 per cent in May.
The RAC reported that the average price of a litre of diesel at UK forecourts fell by more than 16p between the start and end of June, marking the largest such decrease 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 per cent 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 per cent later this year, notably above the 2 per cent 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 per cent 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.”