Food prices are rising at their slowest rate in nearly two years, driven by a fall in staples such as margarine and sugar as supermarkets push deals to attract shoppers this summer. Inflation in the UK has declined further, with the year-to-June reading at 2.6%, down from 2.8% in May, according to the Office for National Statistics (ONS). The softer inflation print is framed as good news for households, though analysts caution the relief may prove temporary as higher energy costs loom in July.
Fuel prices have also declined, with pump prices easing for the first time since the early days of the regional conflict in the Middle East, helping pull overall inflation lower. Clothing prices also cooled during the June period as retailers offered larger summer discounts. In food and non-alcoholic beverages, inflation fell by 0.2% month-on-month, with notable declines in sugar, chocolate and confectionery. Meat—especially beef—and vegetables rose, but the increases were smaller year over year. Oils, fats and dairy prices also fell versus a year earlier.
Industry observers note that food inflation often lags behind broader price movements by up to about a year, leaving room for potential effects from the war in Iran to materialize later. A renewed escalation of regional tensions and a jump in crude oil prices could still drive inflation higher in coming months.
Supermarket price competition has been cited by the British Retail Consortium (BRC) as a key factor behind lower food inflation. BRC economist Harvir Dhillon said the decisive pricing actions by retailers must be supported by government steps to reduce the cost of doing business so price stability endures.
Prime Minister Andy Burnham has framed the cost of living as a policy priority, and Chancellor John Healey described the lower inflation pace as “news families want to hear,” while cautioning that there is still much to do. The government has announced measures aimed at easing living costs, including bringing the England bus fare cap back to £2 in January and scrapping VAT on domestic electricity bills for the rest of the year from October. Healey said the policy mix represents a “win-win” by keeping inflation down while helping households afford essentials.
Despite the softer inflation reading, the Bank of England’s 2% target remains out of reach, and most economists expect only a limited near-term policy response. ICW’s Suren Thiru said a rate hike at the upcoming policy meeting is unlikely, noting that rate-setters will want to assess the impact of the latest measures before tightening further. KPMG’s Yael Selfin said June is likely the lowest inflation point of the year, while higher energy bills could push inflation up again if Ofgem’s price cap remains elevated longer than expected. AJ Bell’s Sarah Coles observed the market pricing implies a single rate increase by the end of 2026, with a potential second move later in the year. She also cautioned that mortgage costs may rise even as savings rates improve in the interim.
