UK inflation fell further in June, with headline CPI slowing from 2.8% y/y to 2.6% y/y, below expectations of 2.7%. The monthly CPI rose 0.1% month over month, matching expectations but slowing from May’s 0.2% increase. This data extends a gradual decline in inflation in the UK, suggesting that overall price pressures continue to moderate even as heightened geopolitical tensions continue to fluctuate energy markets.
But under the title the picture was more nuanced. The core CPI, which excludes energy, food, alcohol and tobacco, settled at 2.6% on an annual basis, beating expectations for a slight decline to 2.5%. Goods inflation continued to decline, slowing from 2.0% to 1.7%, while services inflation – a key measure of domestic price pressures monitored by the Bank of England – fell from 3.7% to 3.6%. The decline in services inflation is encouraging, but the resilience of core inflation suggests that underlying price pressures have not yet fully dissipated.
Overall, the report is unlikely to materially change the Bank of England’s policy outlook. The decline in headline inflation supports the broader disinflation narrative, but an upward surprise in the core CPI would temper expectations that policymakers are achieving a decisive victory on inflation. With Governor Andrew Bailey ruling out monetary easing in the near term, the latest numbers strengthen the case for keeping interest rates unchanged while we wait for more evidence that core inflation is declining more convincingly.
Economic data
| index | actual | expected | former |
|---|---|---|---|
| Consumer Price Index (annual) | 2.6% | 2.7% | 2.8% |
| Consumer Price Index (CPI) | 0.1% | 0.1% | 0.2% |
| Core CPI (annual) | 2.6% | 2.5% | 2.6% |
Inflation components
| component | present | former | direction |
|---|---|---|---|
| Consumer Price Index Commodities (annual) | 1.7% | 2.0% | ↓ Slow down |
| CPI Services (annual) | 3.6% | 3.7% | ↓ Tempered |
Key takeaways
- The headline CPI slowed from 2.8% to 2.6% on an annual basiswithout shooting 2.7% consensus.
- The monthly consumer price index rose 0.1%,matching expectations and slowing down from 0.2% previously.
- The core CPI stabilized at 2.6% on an annual basisabove expectations 2.5%Which indicates that core inflation has remained steady.
- Commodity inflation fell from 2.0% to 1.7%Pointing out the continued normalization of prices of consumer goods.
- Services inflation slowed from 3.7% to 3.6%This indicates that domestic price pressures continued to gradually moderate.
- The report was generally mixed, with lower headline inflation offset by stronger than expected core inflation, leaving the Bank of England’s policy outlook largely unchanged.
