Britain’s annual inflation rate fell back sharply from a four-year high last month, defying expectations it would remain steady in June.
The Office for National Statistics said consumer prices rose 2.6 per cent in June compared to the same month last year, down from 2.9 per cent in the previous month.
Analysts are watching out for signs that 12 per cent depreciation in trade-weighted sterling has fully “passed through” to the economy through higher import prices. Ahead of the release, economists at Barclays said they expected the “peak” in inflationary pressures to have passed this year.
The tumble from May to June was the biggest drop since February 2015, said the ONS, with the dip driven by the falling price of car fuel and declining costs for recreational services.
Core inflation, which strips out volatile elements such as food and energy, also slipped back from 2.6 per cent to 2.4 per cent (forecast: no change). The Bank of England targets headline inflation of 2 per cent.
Softer inflation will help ease the pressure on UK workers who are suffering their worst period of real wage growth in over two years. Average earnings growth fell negative earlier this year and shrunk by 0.6 per cent in the three months to May, according to official figures.
A decline in inflationary pressures should also douse hawks at the Bank of England after three members of the Monetary Policy Committee voted for a rate hike last month. That made it the tightest decision since 2011. But Mark Carney, BoE governor, remains firmly in the dovish camp, arguing that “now is not yet the time” to consider raising rates.