Temporary inflation slowdown set to boost Burnham
Inflation is expected to have eased last month in a welcome but temporary boost for Andy Burnham’s incoming government.
The headline rate of Consumer Prices Index (CPI) inflation is tipped to have eased from 2.8 per cent in May to 2.6 per cent in June, according to some economists.
The latest rate of inflation will be revealed on Wednesday, in the week that the former Mayor of Greater Manchester will take over as Prime Minister.
A sharp drop in petrol and diesel prices is expected to have helped pull the overall inflation rate down.
Motoring services firm the RAC said the average price of a litre of diesel at UK forecourts dropped by more than 16p from the start to the end of June – the largest since records began in 2000.
This was driven by news of an interim ceasefire deal between the US and Iran to end the conflict, prompting oil prices to fall below pre-crisis levels.
Energy prices to jump again
Economists expect inflation across the UK’s services industry to have slowed in June – although live music events like Harry Styles and Take That concerts may have pushed prices up in certain places.
Household energy inflation is also expected to have taken a step down last month.
But the energy price cap has since risen, with the average bill jumping by 13 per cent to £1,862 a year from the beginning of July.
Tensions in the Middle East have also flared up again and Brent crude oil prices have been rising during July.
Sanjay Raja, chief UK economist for Deutsche Bank, said he expects a “bumpy path” ahead.
“While we’re nowhere close to the peaks seen during the height of the Iran conflict, the energy disinflation path remains uncertain,” he said.
He also cautioned that the “spectre of food price rises remains stark”.
Food inflation slowed from three to 2.2 per cent in May but industry figures have warned that it could jump to as much as 10 per cent this year as rising energy and supply chain costs come into effect.
Chancellor pick crucial for inflation
Victoria Scholar, head of investment for Interactive Investor, said: “Inflation is likely to peak at around 3.5 per cent later this year, notably above the 2 per cent target, but relatively under control compared to the inflation spike back in October 2022 during the post-Covid reopening period and Russia’s invasion of Ukraine.”
Experts also said that Burnham’s choice of chancellor, which is not yet known, will be crucial in the longer term as any indication of plans to increase public spending could put pressure on UK inflation.
Home secretary Shabana Mahmood is in pole position to become Burnham’s chancellor, according to reports, but the incoming Prime Minister has insisted he is yet to make any cabinet appointments.
A group of analysts for Investec said: “The new incumbent of No 11 will have a busy slate of economic indicators to scrutinise in their first week of the job.
“June’s CPI inflation data on Wednesday will certainly be one of the highlights.
“May’s rate of 2.8 per cent was less than expected and our forecast for next week’s number suggests a drop to 2.6 per cent, thanks partly to a fall in petrol prices between May and June.”