Figures from the Office for National Statistics (ONS) showed CPI inflation fell to 2.6% in the 12 months to June, down from 2.8% in May. On a monthly basis, consumer prices rose by 0.1%, compared with a 0.3% increase in June last year.

The broader Consumer Prices Index including owner occupiers’ housing costs (CPIH) also slowed, falling to an annual rate of 2.8% from 3.0% in May. Monthly CPIH inflation was 0.2%, compared with 0.3% a year earlier.

The ONS said transport costs, along with food and non-alcoholic beverages, made the largest downward contributions to the fall in both CPIH and CPI inflation.

Underlying inflation remained more persistent. Core CPI, which excludes energy, food, alcohol and tobacco, held steady at 2.6% year-on-year, while core CPIH was unchanged at 2.8%.

Goods inflation continued to moderate, with the annual CPI goods rate easing from 2.0% to 1.7%. However, services inflation – a closely watched measure for policymakers – remained elevated, edging down only slightly from 3.7% to 3.6% under the CPI measure, while the CPIH services rate was unchanged at 3.6%.

The latest figures are likely to be welcomed by policymakers as evidence that inflationary pressures continue to ease, although the resilience of services inflation suggests underlying price pressures have yet to fully subside.

Felix Feather, economist at Aberdeen Investments, said: “June’s inflation data offers some welcome relief for policymakers. Lower petrol and diesel prices over the month mean that energy made less of a contribution to inflation than previously, helping to pull the headline rate lower.
 
“However, this relief is likely to be fleeting. Household energy bills have yet to fully reflect this summer’s energy price shock, and the increase in the Ofgem price cap will push inflation higher again in the months ahead. The proposed 5% cut to household fuel VAT will come too late to have an effect in the summer. And when it does arrive, the difference it will make to the inflation outlook will be almost negligible – around 0.1ppt off the headline rate.
 
“As a result, we still expect inflation to move back above current levels over the remainder of the year, eventually breaching 3% even if tensions in the Middle East moderate.
 
“However, the more important signal for the Bank of England is coming from domestically generated inflation. Labour market conditions have softened, wage growth is slowing and there remains limited evidence of the kind of second-round inflation effects that would concern policymakers. That should help prevent the energy-driven rise in inflation from becoming entrenched.
 
“While inflation is likely to remain above the Bank’s 2% target for some time yet, the medium-term outlook is more sanguine. As the temporary impact from higher energy costs fades over 2027 and 2028, inflation should resume drifting lower. Of course, if the energy cost shock does not unwind, inflation would follow a higher-for-longer path.”

Emeritus Professor Joe Nellis, economic adviser at MHA, added: “Inflation fell to 2.6% in June, marking a welcome piece of good news for the incoming Prime Minister and his Chancellor as they look to set out their policy agenda.

“The escalation of tensions in the Middle East in February led to fears of inflation spiralling out of control, as supply chains were disrupted and oil prices surged. However, while inflation has remained consistently above the Bank of England’s 2% target, it remains far below expected levels – in its World Economic Outlook published in April, the IMF predicted inflation to head towards 4% by the end of the year.

“For Andy Burnham, the easing of inflation creates a more stable platform for his fledgling administration. As he looks to support those struggling with the cost-of-living crisis and encourage job creation, lower inflation rates will help to improve household spending power and boost business confidence, as long as earnings growth continues to outpace price rises.

“But there is no room for complacency. A key contributor of falling inflation in recent months has been the cooling price of Brent crude oil in recent months, only beginning to rise again in July following renewed geopolitical hostilities. This reminds us how vulnerable the Treasury and Bank of England are to external shocks and headwinds in the global economy, and that the long-term inflation trajectory for the UK is largely out of their control.

“Another important reason inflation hasn’t risen higher is because the economy is failing to kick into gear. Inflation remains more subdued than expected because weak consumer demand is suppressing activity in the economy, preventing prices from being driven up too high. In this case, falling inflation is a side-effect of a sluggish economy, not a flourishing one.

“Today’s inflation data is a step in the right direction. If the current path can continue, then the Bank of England may not be forced into raising interest rates, and we could even see cuts again by early next year. But this shouldn’t be taken for evidence of an economy under control. The UK economy remains acutely vulnerable to being knocked off course, and inflation expectations in the long-term remain unclear.”

Kevin Brown, savings expert at financial mutual Scottish Friendly, commented: “A dip in inflation in June creates a striking disconnect between months of alarming headlines about the Middle East and an official rate that has nevertheless continued to move lower.

“People shouldn’t be complacent. Today’s figure is arguably backward-looking and may not fully reflect yet the higher energy costs households will begin to face following July’s energy price-cap change.

“The Bank of England may now decide it can hold its base rate next week rather than raise it, however policymakers are likely to remain wary of next month’s inflation reading which could present a far less comfortable picture.

“Lower inflation still means prices are rising, not falling, so UK households could consider continually reviewing savings returns, energy costs and everyday spending. For those with a suitable cash buffer and a long-term horizon, investing through an ISA could also form part of a plan to strengthen future financial resilience.”