Why has inflation gone down and where will it go from here?

UK inflation fell to the lowest rate in 15 months in June as a drop in fuel and food prices helped bring down the overall cost of living.

The Office for National Statistics (ONS) said the rate of Consumer Prices Index (CPI) inflation was 2.6% in June, down from 2.8% in May and the lowest level since March 2025.

But while the latest figures indicate that households benefited from the cost of living easing last month, experts have warned that June could mark a low point before price rises start to speed up again.

Here, the Press Association looks at what was driving the drop in inflation and what could lie ahead for households.

– What is inflation?

Inflation is the term used to describe the rising price of goods and services.

The inflation rate refers to how quickly prices are going up.

April’s inflation rate of 2.6% means if an item cost £100 a year ago, it would now cost £102.60.

The lower rate of inflation means that prices are still rising, but at a slower pace than they were the previous month.

The ONS said the biggest downward pull on overall inflation last month came from transport, particularly motor fuel.

Average petrol prices declined by 2.1p per litre between May and June, while diesel prices dropped by 10.7p per litre.

This was the first time that petrol prices have eased since the start of the US-Israel war with Iran at the end of February.

– Why was inflation lower?

The conflict has pushed up global oil prices, because of supply disruption, and this is passed through to the pumps as well as other goods and services that require energy.

While prices cooled between May and June, overall motor fuel prices remained 21.3% higher in the year to June in a sign that the conflict has driven up the cost of living in the UK.

Another driver of lower inflation last month was food and soft drink prices, which fell by 0.2% between May and June, while the annual rate dropped to its lowest in nearly two years at 1.7%.

Food items such as pizza, butter, chocolate and beef dropped month-on-month.

Harvir Dhillon, an economist at the British Retail Consortium, said: “This was driven largely by intense competition between supermarkets, trying to entice their customers during a warm spell of weather, despite supply chain pressures.”

– Will lower inflation last?

Experts have warned that June’s inflation reading could be a low point before price rises speed up again over the rest of the year.

This is partly because Ofgem’s price cap increased by 13% in July compared with previous rates, meaning the typical household’s gas and electricity bill will increase by £221 to £1,862 a year.

That was largely because of unrest in the Middle East pushing wholesale prices up, and households are being warned to expect household bills to remain elevated throughout this winter.

Felix Feather, an economist at Aberdeen Investments, said June’s cost-of-living relief was 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,” he said.

Yael Selfin, chief economist at KPMG, said: “We expect June to mark the trough, with inflation set to edge up from July as higher household energy bills take effect coinciding with the rebound in fuel prices.”

– How high could inflation go?

The Bank of England has said it is expecting CPI inflation to rise to a peak of about 3.25% towards the end of 2026, according to its latest forecasts.

But it has stressed that the energy market remains volatile and swayed by developments in the Middle East.

Experts are also predicting inflation to increase over the course of the year as higher energy costs feed through into the price of goods and services.

Economists at ING are forecasting inflation to peak at just below 3.5% late this year or in early 2027.

– What is the Government doing to help?

Prime Minister Andy Burnham has said he wants efforts to ease the cost of living for people to be a top priority.

On his first full day on the job, he announced that electricity bills will be VAT-free from October 1, saving households about £45 a year.

Cutting VAT from 5% to 0% is estimated to reduce CPI inflation by around 0.1 percentage points when it comes into effect, according to the Government.

The Government also announced plans to reinstate a £2 cap on bus fares, but this will not be in place until January.

Newly appointed Chancellor John Healey said in response to the latest inflation figures: “We have chosen to focus on the cost of living in our first week, signalling that concern for working people will be at the heart of everything we do.”

– What does this all mean for interest rates?

Some economists think that the drop in inflation will take the pressure off the Bank of England to raise interest rates next week.

This means policymakers could vote to keep rates unchanged at 3.75%, which would be the fifth consecutive time.

James Smith, developed markets economist for ING, said the latest inflation figures “provide no compelling reason to hike interest rates right now”.

“We expect the Bank of England to hold rates throughout 2026 before looking to cut rates gradually from next spring,” he said.