Commenting, Malvee Vaja, Chartered Financial Planner at Rathbones, one of the UK’s leading wealth and asset management groups, says: “Inflation slowed by more than expected last month, offering a welcome boost to new Prime Minister Andy Burnham and a potential launchpad for his agenda to support households struggling with the cost-of-living squeeze.
“The latest figures came after the announcement that most single bus fares in England will be capped at £2 from January, in a move designed to ease pressure on household budgets.
“The slowdown was driven largely by falling motor fuel prices, particularly diesel, while cheaper chocolate, margarine and beef and steeper clothing discounts also helped ease price pressures.
“Motor fuel prices were supported by a period of relative calm in the conflict between the US and Iran in June, after Washington and Tehran agreed to halt military operations and reopen the Strait of Hormuz, a crucial artery for global oil supplies. The development helped push down prices at the pump.
“But the respite may prove short-lived. The energy price cap rose by 13% in July, increasing the typical household energy bill for millions of households across England, Wales and Scotland. The impact will be reflected in the next set of inflation figures.
“The recent escalation of hostilities in the Middle East has added to the uncertainty, pushing Brent crude back above $90 a barrel. If oil prices remain elevated, higher fuel and transport costs could reignite inflationary pressures.
Case for interest rate hike weakened
“Services inflation, closely watched by interest-rate setters as a gauge of underlying price pressures, eased from 3.7% in May to 3.6% in June. Combined with subdued private-sector wage growth, the latest reading weakens the case for higher interest rates.
“As ever, the path back to the 2% inflation target is proving a winding one. With the outlook for energy prices clouded by the unpredictable nature of the conflict in the Middle East, there could be more twists and turns ahead.”
