The rate of the UK’s price rises has fallen from 8.7 per cent to 7.9 per cent in the year up to June, according to the latest official figures.
The consumer price index measure of inflation showed a bigger-than-expected fall – offering some welcome relief to families struggling with the cost of living crisis.
While prices are still rising, the Office for National Statistics said the rate of increase had “slowed substantially” to its lowest annual level since March 2022.
The drop will also come as good news to Rishi Sunak’s government and the Bank of England – with City forecasts predicting a fall to only 8.2 per cent.
While core inflation has dropped back after hitting a 30-year high in May, it is still well above the Bank’s official 2 per cent target – with further interest rate hikes expected in the months ahead in a bid to tame prices.
The government said the figures were finally “moving in the right direction”. Despite the better-than-forecast figures, chancellor Jeremy Hunt said “we aren’t complacent and know that high prices are still a huge worry for families and businesses”.
Mr Hunt added: “The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”
The ONS’ chief economist Grant Fitzner said food inflation had eased only slightly, with fall mainly driven by price drops for petrol and diesel.
Inflation at the supermarket pared back to 17.3 per cent from 18.7 per cent in May, but items on the shelf remains painfully expensive for hard-pressed shoppers. “Food price inflation eased slightly this month, although it remains at very high levels,” said Mr Fitzner.
Food prices are only 1.8% below March 2023 peak
The British Retail Consortium (BRC) said supply chains remained “volatile”, and warned that Vladimir Putin’s decision to pull out of the Ukraine grain supply agreement could push up “staple” food prices again in future.
Helen Dickinson, the BRC’s chief executive, said prices for cheese, fruit and fish all dropped as lower commodity and energy costs filtered through to customers, along with price drops in children’s clothing and domestic appliances.
Karen Betts, chief executive of the Food and Drink Federation, said the latest figures were “encouraging”, adding. “We hope the rate of food and drink price inflation will continue to fall steadily over the coming months.”
But she warned that food and drink manufacturers’ costs were one-third higher than they were three years ago. “Russia’s decision to pull out of the Black Sea grain deal is unhelpful too and brings new risks to global grain supplies,” the food chief added.
Inflation in the UK remains the highest in the G7 group of rich economies, and some financial experts have predicted that the Bank of England could increase the base rate beyond 6.5 per cent by early next year – pushing up mortgage rates and pressure on homeowners.
Chancellor Jeremy Hunt is under pressure to halve inflation in 2023
Labour’s shadow chancellor Rachel Reeves said Britain’s inflation being higher than international peers was a “hallmark of Tory economic failure” – saying families knew prices are “still going up at staggering rates and that they’re bearing the brunt of those costs”.
Ms Reeves added: “There may be global shocks – but Britain is so exposed to those because of Tory economic failure that has led to a severe lack of security in our economy.”
The Lib Dems’ Treasury spokesperson Sarah Olney said the figures would be “cold comfort to countless families worried about their mortgage going up”.
Labour’s Rachel Reeves says prices still going up at ‘staggering rates’
The latest figures boost the chances that the Bank of England – considering a 0.5 per cent rise in the base rate next month – will opt for a smaller rise of 0.25 per cent.
Money-saving expert Martin Lewis said the inflation figures could be a “strong signal” of some “good news” for mortgage holders by taking pressure of interest rate rises. And Mohamed El-Erian, chief economic advisor to Allianz, said it was undoubtedly “good news for those looking for mortgages”.
The Resolution Foundation said the “chunky” inflation fall was “unambiguously good news” and had ended the UK’s 18-month period of falling real wages.
Research director James Smith said: “The scale of the fall will ease pressure on mortgages and wages, with the Bank of England less likely to keep interest rates higher for longer, and Britain’s latest 18-month pay squeeze is coming to an end.”
However, the Resolution Foundation noted that UK still has the highest inflation rate in the G7, and the third highest among OECD advanced countries. “After today it merely looks bad rather than a basket case,” said Mr Smith.
The Joseph Rowntree Foundation (JRF) also pointed out that Britain was “still in the belly” of a food price crisis – saying 5.7 million families on low incomes were forced to eat less or skip meals.
Calling for an increase in Universal Credit, JRF’s chief economist Alfie Stirling said: “The crisis is now entering a dangerous new phase. With 2.3 million low-income families continuing to take out loans to pay for essential bills, rising interest rates risk a second wave of material hardship even as inflation continues to fall.”
