Lower fuel, chocolate and beef prices help push inflation down

New Prime Minister Andy Burnham has pledged to make the cost of living a priority for his government, and new Chancellor John Healey said the lower rate of inflation was “news families want to hear” but “there is much more to do”.

The government announced on Wednesday morning that the bus fare cap in England will be brought back down to £2 in January.

That was after Burnham announced that VAT on domestic electricity bills would be scrapped for the rest of the year from October.

Healey said: “Both these changes are a win-win. They help keep inflation down, while helping people afford the essentials.”

The latest inflation figure is still above the Bank of England’s target of 2%, but Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said a rate increase when the Bank meets next week is unlikely.

“Rate-setters may want to assess the impact of any measures announced by the new Prime Minister before deciding whether to tighten policy again,” she said.

She added that rising inflation will “likely become a more notable economic headache” for Healey, “squeezing his fiscal headroom, raising borrowing costs, and increasing financial market volatility”.

Yael Selfin, KPMG’s chief economist, said the June figure is likely to be the lowest of the year.

Higher energy bills, brought about by a rise in Ofgem’s price cap, will likely push inflation up again, she said.

“Although the impacts from the initial energy shock have so far been relatively limited, if energy prices remain high for longer, second-round effects risk feeding through into wages and more broadly across the economy.”