Inflation fell again in June 2026, moving closer to the Bank of England’s 2% target.
The Consumer Prices Index, commonly known as CPI, rose by 2.6% in the 12 months to June. This was down from 2.8% in May and was the lowest annual rate recorded since December 2024.
This is an encouraging step, particularly after the higher inflation seen over recent years. However, it does not mean that prices are falling across the board. In most cases, prices are still increasing, but they are rising more slowly than before.
Lower transport costs, falling fuel prices and slower food price growth were the main reasons inflation eased. However, some services, including restaurants, hotels and communications, continued to see stronger price increases.
Key points at a glance
- CPI inflation fell from 2.8% in May to 2.6% in June 2026.
- Prices increased by 0.1% between May and June.
- Transport made the largest contribution to the fall in inflation.
- Food price inflation fell from 2.2% to 1.7%.
- Core inflation remained unchanged at 2.6%.
- Services inflation eased slightly from 3.7% to 3.6%.
- Inflation remains above the Bank of England’s 2% target.
What is CPI inflation?
CPI measures how the prices of a typical range of goods and services change over time.
It includes everyday spending such as:
- Food and drink
- Clothing
- Fuel
- Transport
- Household goods
- Restaurants and hotels
- Communication services
- Recreation and leisure
The June figure of 2.6% means that, on average, the items included in the CPI measure cost 2.6% more than they did in June 2025.
It is important to understand that falling inflation does not normally mean prices are returning to where they were previously. It means the pace at which prices are increasing has slowed.
For example, if something increased from £100 to £105 last year and then rose to £107 this year, the price is still higher. However, the rate of increase has reduced.
What caused inflation to fall?
The reduction in inflation was not caused by one single change. Several spending categories contributed, with transport and food having the greatest effect.
Transport costs
Transport was the biggest reason inflation fell in June.
Transport prices increased by 5.7% over the year, which was still a significant rise. However, this was lower than the 6.8% annual increase recorded in May.
On a monthly basis, transport prices fell by 0.3% in June. By comparison, they increased by 0.7% during the same month last year.
Fuel prices were particularly important.
The average price of diesel fell by 10.7 pence per litre between May and June 2026. The average diesel price stood at 176.4 pence per litre in June.
Petrol prices also fell, reducing by 2.1 pence per litre during the month. The average petrol price was 155.3 pence per litre.
These reductions helped bring the headline inflation figure down. However, fuel remained considerably more expensive than it was a year earlier, with overall motor fuel prices still 21.3% higher than in June 2025.
You may therefore have noticed some relief when filling up your car, but fuel costs remain a source of pressure for many households.
Food and drink
Food and non-alcoholic drink prices increased by 1.7% in the 12 months to June.
This was down from 2.2% in May and was the lowest rate of food price inflation since August 2024.
Food prices also fell by 0.2% between May and June. During the same period last year, prices increased by 0.3%.
The largest downward effects came from areas including:
- Chocolate and confectionery
- Oils and fats
- Dairy products
- Meat
- Vegetables
This does not mean every item became cheaper. Some food prices continued to rise, but the overall rate of increase slowed.
Food is an area where changes in inflation are often noticed quickly because you are likely to buy many of the same products each week. Even with inflation easing, the total cost of a typical food shop may still feel much higher than it did several years ago.
Clothing and footwear
Clothing and footwear prices fell by 0.5% in the year to June, compared with an increase of 0.2% in May.
Prices fell by 1.2% during June alone.
Clothing prices often reduce during June as retailers begin their summer sales. The fall was greater than the reduction seen during the same month last year, which helped lower the annual inflation rate.
Restaurants and hotels
Not every category helped bring inflation down.
Prices for restaurants and hotels increased by 4.4% in the 12 months to June, up from 4.2% in May.
Prices also increased by 1% during June alone.
Higher costs for package holidays and accommodation contributed to this increase. This may be particularly noticeable if you are booking a holiday, staying in a hotel or regularly eating out.
Restaurants and hotels are now making a larger contribution to inflation than they were several months ago.
Other areas where prices increased
Communication costs increased by 5.2% over the year, while education costs also increased by 5.1%.
Recreation and cultural activities rose by 1.7%, and miscellaneous goods and services increased by 2.7%.
Housing and household services increased by 1.2% under the CPI measure. However, CPI does not include every housing cost, which is why you may see a different figure when CPIH inflation is reported.
The CPI figure remains particularly important because it is the measure used by the Bank of England when assessing its inflation target.
What happened to core inflation?
Core inflation excludes energy, food, alcohol and tobacco.
These items can experience significant price movements, so removing them can provide a clearer picture of underlying price pressures.
Core CPI remained at 2.6% in June, unchanged from May.
Although the headline inflation rate fell, an unchanged core rate suggests that some underlying pressures remain.
Goods inflation eased from 2% to 1.7%, while services inflation fell slightly from 3.7% to 3.6%.
Services inflation is watched closely by the Bank of England because it can reflect changes in wages and other costs faced by businesses. At 3.6%, it remains higher than the overall CPI rate.
What does this mean for interest rates?
The fall in CPI from 2.8% to 2.6% is likely to be viewed as positive news.
Inflation is now much closer to the Bank of England’s 2% target than it was during the recent period of rapidly rising prices.
However, one lower inflation figure is unlikely to determine interest rate decisions by itself.
The Bank of England will also consider:
- Core inflation
- Services inflation
- Wage growth
- Employment figures
- Economic growth
- Energy and fuel prices
- Whether inflation is expected to remain under control
Core inflation remaining unchanged and services inflation staying above the headline rate may encourage policymakers to remain cautious.
If inflation continues to move towards 2%, it could strengthen the case for lower interest rates. However, any future changes are likely to depend on several months of evidence rather than one set of figures.
What does this mean for mortgage rates?
Lower inflation can be helpful for mortgage rates, but the relationship is not immediate.
Mortgage lenders do not simply reduce their fixed rates when the CPI figure falls. Fixed mortgage pricing is influenced by a range of factors, including financial market expectations, swap rates, competition between lenders and the cost of raising money.
Markets often react before the Bank of England makes an official rate change. This means mortgage rates can sometimes fall in anticipation of lower interest rates, or rise when markets become concerned about future inflation.
A lower inflation figure may improve confidence that borrowing costs can reduce over time. However, mortgage rates may continue to move up and down as new economic information becomes available.
You should therefore avoid making a mortgage decision based only on the latest inflation announcement.
What this means for you
You may gradually notice less pressure in areas such as fuel, food and clothing. However, the cost of living remains higher than it was before the recent period of inflation.
If you are coming to the end of a fixed mortgage rate, your new monthly payment could still be higher than your existing payment, particularly if your current mortgage was arranged several years ago.
Reviewing your options early can give you more time to understand:
- The rates available to you
- Your likely monthly payments
- Whether to choose a fixed or variable rate
- Whether changing your mortgage term would help
- Whether your existing lender offers a competitive product
- Whether moving to another lender could provide better value
You may be able to secure a new mortgage product several months before your current deal ends. Depending on the lender and product, it may also be possible to review the rate again if a cheaper option becomes available before completion.
Looking ahead
June’s inflation figures show that price pressures are continuing to ease, but the outlook remains uncertain.
The main areas to watch over the coming months include:
- Whether CPI continues moving towards the Bank of England’s 2% target
- Whether services inflation falls further
- Future wage growth figures
- Fuel and energy prices
- Food price movements
- Financial market expectations for interest rates
- Future Bank of England decisions
- International political and military developments
Events overseas can have a significant effect on inflation. Tensions involving Iran and the United States, as well as the continuing conflict between Russia and Ukraine, can affect oil and gas prices, shipping routes, international trade and global supply chains.
These events can develop quickly and remain difficult to predict. Even when inflation is moving in the right direction, a sudden increase in energy costs or disruption to the supply of goods could push prices higher again.
Fuel prices had a particularly large effect on the June figures. Further falls could help inflation continue to ease, while renewed international tensions or supply disruption could cause fuel and energy prices to rise and place fresh upward pressure on inflation.
Conclusion
CPI inflation fell to 2.6% in June 2026, down from 2.8% in May.
Lower transport costs, falling fuel prices and slower food price growth were the main reasons for the reduction. Clothing prices also fell, while restaurants, hotels and some services continued to become more expensive.
The figures are a positive sign because inflation is moving closer to the Bank of England’s 2% target. However, core inflation remained unchanged and services inflation is still relatively high, so further interest rate changes are not guaranteed.
The outlook also remains unpredictable, as international tensions and conflicts involving Iran, the United States, Russia and Ukraine could affect energy prices, trade routes and global supply chains, placing renewed upward pressure on inflation.
If you are buying a home, remortgaging or approaching the end of your current mortgage deal, it is sensible to review your position rather than waiting for a particular inflation or interest rate announcement.
At Kerr & Watson, we can explain the mortgage options available to you and help you understand how changing rates may affect your repayments.
Contact our team to discuss your circumstances and receive clear, tailored mortgage advice.
Read more: Consumer price inflation, June 2026
