Experts react to easing inflation figures under Burnham

The latest UK Inflation figures have given Andy Burnham’s new government a welcome early boost as it prepares to set out its fiscal plans.

UK CPI fell from 2.8% to 2.6% in June, bringing inflation closer to the Bank of England’s 2% target. However, higher energy costs and global uncertainty could still push inflation back up.

Experts share their thoughts on the latest figures below:

“With Andy Burnham now at the helm, and a raft of fiscal policies expected this week, inflation has moderated for June, coming in at 2.6% and down from 2.8% in May. Much of this fall came as a result of a fall in petrol and diesel prices as energy costs dropped sharply in the wake of the ceasefire between the US and Iran, although that is now looking uncertain to remain the case as tensions remain high in the region.

“Burnham has said his newly formed government must be a ‘cost of living government’, meaning there is a lot of pressure on him and his colleagues to get inflation back down to the 2% target. Today he has targeted bus fares for consumers, but large packages of help, which would impact inflation significantly will be difficult given how much is out of his control and at the whims of events in the Middle East with energy prices. Indeed, taking VAT off household energy bills, which will marginally bring inflation down, risks being counteracted by a rise in the price cap come October.

“The good news for Burnham is that grocery inflation has slowed to its weakest rate since December 2024. However, with events in the Middle East still threatening to erupt back into a full-scale conflict as we saw earlier this year, this will continue to put pressure on the inflation rate. Some more fiscal jiggery pokery may be required to help keep it closer to target than it is now.

“What this means for the Bank of England is a continuation of its holding pattern until clearer signs from the Middle East emerge. One rate rise is still expected by the market, and should we see a further spike in gilt yields or inflation then more than that may be required. The UK’s fiscal position remains a tightrope, and despite Burnham’s noble desire for swift action, he may be reminded that the path for inflation may just tie his hands somewhat.”

Richard Carter, head of fixed interest research at Quilter Cheviot

“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.”

Felix Feather, Economist at Aberdeen Investments

“People are acutely aware of the growing cost of living their lives. They’re sensitive to how much they are paying to fill up their cars, the changing price of their weekly shop and the myriad of household bills that need to be paid. 

“June was like a breath of fresh air for many cash strapped families who will have noticed that the price at the pump fell significantly, for the first time since the conflict in the Middle East began at the end of February. 

“Those with a sweet tooth will have marvelled as the price of jam, sugar and chocolate all eased back along with dairy and oils. Even a slight jump in the cost of BBQ burgers and veggies felt almost manageable as supermarkets began their World Cup discounts. 

“As temperatures shot up clothing retailers jumped on the opportunity to persuade us to bag a new pair of shorts, with summer sales something we all expect. But this year found many of the discounts were even more generous as businesses tried to tempt cautious consumers to part with their cash. 

“People were still enjoying the benefits of April’s fall in the price cap, thanks to changes brought about by the previous chancellor but those savings are set to be short-lived even with the new government’s VAT cut on domestic electricity. 

“The resumption of hostilities in the Middle East has seen wholesale prices of gas and oil jump, with the price of Brent crude now rounding $93 a barrel and motorists already experiencing climbing prices. 

“For Andy Burnham it’s a tantalising glimpse of what might have been if geopolitics hadn’t thrown a spanner in the works, with UK inflation in June below that of the EU – although it was above that of both France and Germany. 

“For the Bank of England, it’s likely to buy them another month to consider their options. Market expectation of an interest rate hold at next week’s meeting firmed up on release of the data.

“But rate setters will face the real test in September. The vote split and updated forecast will be closely watched for clues about how many hikes may be required to keep the economy in check.”

Danni Hewson, AJ Bell head of financial analysis

“Today’s data confirms that while price pressures remain elevated and above the Bank of England’s 2.0% target, they moderated last month in response to the now clearly temporary peace deal between the US and Iran. The recent re-escalation in hostilities between the warring parties will likely be on the Bank of England’s mind as rate-setters prepare for next week’s meeting, but for now, a notable drop in energy prices over June was sufficient to shave around 0.1% off the headline outcome. An easing in food prices relative to last year’s increase has also helped delivert 

“The Bank’s Monetary Policy Committee (MPC) will note that today’s headline drop compares with the Bank’s own 3.1% forecast for June. This is seen as a welcome relief from the uncertainty surrounding the extent to which rising energy prices might penetrate higher prices and wages.  

“Today’s figures come hard on the heels of yesterday’s confirmation that domestic labour market conditions remain soft and average earnings growth remains contained. This provides further cheer to the majority on a still sharply divided policy Committee. 

“This is not, however, time for complacency. Hostilities in the Persian Gulf and the continued blocking of commercial shipping through the Strait of Hormuz suggests that last month’s inflation hiatus will provide only temporary respite. Price pressures are expected to intensify going forward, ensuring that the Bank of England remains vigilant. Financial markets are fully priced for a 0.25%-point rate hike before year-end and around 50% priced for another.  

“There is, however, room for doubt. While the Bank’s primary remit is ensuring inflation is controlled, last week’s economic activity data confirmed that growth remains subdued. With inflation set to rise, households’ real incomes remain under severe pressure.

“Time will tell whether the newly installed Burnham cabinet can deliver a sustained improvement to the economy’s fortunes, but present unease further complicates the MPC’s calculus.”

Jeremy Batstone-Carr, European Strategist, Raymond James Wealth Management

“Lower energy prices have done much of the heavy lifting in bringing inflation down in today’s data but this will prove temporary. From next month, the recent uptick in oil prices combined with July’s increase in the Ofgem price cap will likely push inflation higher.

“Prime Minister Burnham’s decision to remove VAT on domestic electricity bills is largely symbolic and will do little to push down on cost-of-living pressures in a meaningful way. The VAT change appears to apply only to electricity, not gas, and with the Ofgem price cap expected to jump again in October, households are unlikely to feel much real improvement to their bottom line.

“Still, even with energy inflation picking up, this is not an environment in which the Bank of England should be raising rates. A soggy labour market reduces the risk that price pressures become entrenched: with less bargaining power, workers will find it harder to rebuild lost purchasing power through higher pay and are more likely to rein in discretionary spending instead. Further tightening would also risk unnecessarily weighing on activity at a time when domestic policy uncertainty is high.”

Zara Nokes, Global Market Analyst at J.P. Morgan Asset Management (JPMAM)