Burnham’s early moves help, but so far they’re a miniscule drop in a very large ocean and the cost‑of‑living fight is far from over.

Inflation has fallen to 2.6% as supermarket price wars, cheaper fuel and summer clothing sales ease the pressure on household budgets. But with energy bills poised to rise and Middle East conflict threatening another surge in oil prices, families and small businesses should hold the champagne: the cost-of-living crisis is far from over.

INFLATION FALLS BUT DON’T GET TOO EXCITED

We’ve finally got a bit of breathing space: inflation has dipped. It fell to 2.6% in June, the lowest level in months, and lower than most economists expected. The dip is thanks to cheaper food, falling fuel prices and summer sales slashing clothing costs. However, hold your horses, because energy bills are set to jump again in July so optimism could be short lived.

FOOD PRICES COOL

Food inflation is rising at its slowest pace in nearly two years, with supermarket staples like margarine, sugar, oils and dairy all dropping in price. Even chocolate and confectionery saw a sweet fall.

Supermarket bosses say a price war is in full swing, with Tesco, Sainsbury’s and Waitrose battling to lure shoppers with summer deals. Not everything is cheaper though so your own personal household shopping basket may defy the figures:

• Beef and veg prices nudged up
• Meat rises were smaller than last year
• Oils, fats and dairy fell compared to 2025

The catch is that food inflation often lags by up to 13 months, meaning the impact of the war in Iran could still hit shelves later this year.

FUEL PRICES DROP

Fuel costs fell for the first time since the Middle East conflict began, after the US and Iran briefly agreed to halt military operations and reopen the Strait of Hormuz. With hostilities flaring again and crude oil prices jumping, fuel could reverse the welcome inflation fall.

SUMMER SALES

Retailers rolled out bigger discounts than last year, pushing clothing prices down and helping drag inflation lower. Bargain hunters scored but small and micro retailers can’t keep cutting forever.

BURNHAM GETS A BOOST

The fall in inflation is welcome news for new Prime Minister Andy Burnham, who has made the cost of living his top priority. Chancellor John Healey called the drop “news families want to hear”. The government has scrapped VAT on domestic electricity bills from October and capped bus fares across England to £2 from January, but already the fighting has begun over how those moves will be paid for, and they’re a drop in the ocean for people who’ve been struggling since the pandemic. Small businesses really do need consumers to have more money to spend and the confidence to spend it and we’re not there yet. There’s no reason to pop the champagne corks yet.

ENERGY BILLS SET TO RISE AGAIN

Ofgem’s higher price cap kicks in soon, and economists say July’s inflation figure could jump sharply. 2.6% could be the lowest inflation level of the year because high energy prices could push wages and costs up across the economy.

INTEREST RATE HIKE?

Businesses and household want an interest rate cut, but inflation is still above the Bank of England’s 2% target, which could have inspired calls for a rate rise. That’s not likely for now because the Bank of England’s interest rate‑setters will want to see how the new Government’s early policies play out.

Markets expect one interest rate hike by the end of 2026, possibly in September, meaning savers could see better deals, but mortgage hunters are still struggling as rates have already jumped this week. Small and micro businesses too really do not want to see a rate rise. They need any help they can get to reduce their costs including borrowing costs as many are being forced to borrow just to manage their cash flow and survive.

Inflation’s down, and with food and fuel rising at slower rates we have a bit of a breather. With yet more global chaos reverberating around the Middle East leading to energy costs rising again that relief may be short-lived. Burnham’s early moves help, but so far they’re a miniscule drop in a very large ocean and the cost‑of‑living fight is far from over.

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