Cheaper fuel sees inflation fall to 2.6% in June

Updated: 

Inflation dropped back last month as the falling price of fuel and computer games eased the pressure on household spending power.

The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation fell to 2.6% growth in June, down from 2.9% the month before.

While the fall was below economists' expectations of 2.9%, the cost of living has remained above the Bank of England's target of 2%.

The move will ease the pressure on consumers, who have seen their pay squeezed by sluggish wage growth and higher inflation triggered by the Brexit-hit pound. 

It comes after annual total pay in real terms sank by 0.7% to its lowest level since the summer of 2014 in the three months to May and fell by 0.5% excluding bonuses over the period. 

Jonanthan Athow, ONS deputy national statistician, said: "Today's fall in inflation is mainly due to drops in petrol and diesel prices. However, the rate remains higher than in the recent past."

The main downward pressure on the cost of living came from fuel, which saw the fourth consecutive month of falling prices, dropping 1.1% between May and June. 

Petrol prices dropped by 1.1p over the period to 115.3p per litre, while diesel also declined by 1.4p to 117.3p. 

Recreational and cultural goods, which includes computer games, was also driving overall prices lower after dropping by 0.1% on the month following a rise of 0.6% over the same period last year. 

Upward pressure on everyday prices came from food, which saw costs ease back by a smaller 0.3% in June compared with a 0.4% fall for the same month in 2016. 

Last month's drop was driven by a slide in the price of boxes of chocolates and bags of sweets, which caused the overall category for sugar, jam, honey, syrups, chocolate and confectionery to drop by 2.6%. 

Sterling sank on the news as lower inflation means the Bank of England is less likely to raise interest rates from record lows of 0.25%. 

The pound, which had touched 1.31 US dollars earlier in the day, slipped back to 1.30 US dollars. 

The UK currency fell by 0.5% against the euro to 1.13 euros. 

The Bank's deputy governor, Ben Broadbent, said last week that he is "not ready" to hike the cost of borrowing due to too many "imponderables" in the economy. 

Three out of the eight Monetary Policy Committee (MPC) members - Ian McCafferty, Kristin Forbes and Michael Saunders - unexpectedly backed a move to increase rates to 0.5% during the last vote due to concerns over rising inflation. 

Bank governor Mark Carney said at the end of June that "some removal of monetary stimulus is likely to become necessary", but would depend on whether an increase in business spending could counter the slowdown in consumer spending. 

The Bank expects inflation to peak at 3% by the autumn of this year.

The Consumer Price Index including owner occupiers' housing costs (CPIH) fell to 2.6% in June, down from 2.7% in May. 

CPIH is the ONS's preferred measure of inflation, which includes costs associated with living in, maintaining and owning a home. 

The Retail Price Index (RPI), a separate measure of inflation which includes council tax and mortgage interest payments, reached 3.5% last month, down from 3.7% in May.