UK consumer price inflation eases more than expectedUK consumer price inflation eases more than expected

CPI fell to 7.9% in the year to June from 8.7% in May. This was the lowest reading since March 2022 and below analysts’ expectations of 8.2%, but remains well above the Bank’s 2% target.

The ONS said that falling fuel prices were the biggest contributors to the decline in CPI.

Meanwhile, core inflation – which excludes energy, food, alcohol and tobacco – fell to 6.9% from 7.1%, versus expectations for it to remain unchanged.

ONS chief economist Grant Fitzner said: “Inflation slowed substantially to its lowest annual rate since March 2022, driven by price drops for motor fuels. Meanwhile, core inflation also fell back after hitting a 30-year high in May.

“Food price inflation eased slightly this month, although it remains at very high levels.

“Although costs facing manufacturers remain elevated, especially for construction materials and food items, the pace of growth has fallen across the last year, with the overall cost of raw materials falling for the first time since late 2020.”

Capital Economics said the falls in the CPI inflation rate and core inflation “are unlikely to be enough to prevent the Bank of England from raising interest rates in early August from 5.00%, although it may tilt the balance towards a 25bps hike rather than 50bps”.

“Even so, we think there is enough momentum in wage growth and services inflation to raise our forecast for the peak in Bank Rate from 5.25% to 5.50%,” said chief UK economist Paul Dales.