Inflation offers early economic boost for new PM Burnham
LONDON — U.K. inflation fell to 2.6% in June, its lowest level since March 2025, as lower gasoline costs driven by the cooling of hostilities in the Middle East gave an early economic boost to new Prime Minister Andy Burnham days after he took office.
The fall was driven by energy costs, which came in at 5.7% compared with 7.4% in May. Motor fuel was 3.1% cheaper in June than in May as global oil prices fell following the framework peace deal between the U.S. and Iran signed earlier this month, which had briefly reopened the Strait of Hormuz to commercial traffic.
MSI previously reported that UK pump prices had fallen as Brent crude returned to pre-Iran war levels.
“The June peace deal and the subsequent reduction in oil and gas prices helped cool CPI inflation,” said Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research. “This will be a welcome figure to start the new prime minister’s premiership, but the honeymoon period will be short-lived.”
Burnham, in his first speech in the role outside Downing Street, vowed to help households with the cost of living. His government on Wednesday said it would cap most bus fares nationwide. Among his first policy announcements was a cut to the value-added tax on utilities bills from October that officials said could reduce annual inflation by around 0.1 percentage points.
The respite may prove temporary. Regulator Ofgem lifted the energy price cap for households by 13% at the start of July, and oil prices have climbed again after President Trump said the tentative ceasefire with Iran was “over” and airstrikes resumed. Brent crude rose above $92 a barrel on Wednesday, having fallen to prices lower than before the conflict earlier in July. The Bank of England expects inflation to peak at around 3.75% in the fourth quarter of this year.
The Bank of England, which meets next week, is widely expected to keep its key interest rate at 3.75%. Markets price in two rate hikes between now and March 2027, according to the WSJ.
“All in all, it is hard to see a meaningful hawkish pivot at the July meeting, barring a sustained rise in oil prices to close to $100 a barrel going into the meeting,” Bruna Skarica, chief U.K. economist at Morgan Stanley, said in a note to clients.
The slowdown in U.K. inflation mirrored a broader trend across developed economies. The eurozone’s annual rate of inflation fell to 2.8% in June from 3.2%, while in the U.S. the pace of price rises cooled to 3.46% from 4.2%.