UK inflation slowed to its lowest annual rate since March 2022 last month (June 2023), making it more likely that the Bank of England will raise interest rates by only a quarter of a percentage point next month (in August 2023).

Consumer prices rose 7.9% in June, compared to June 2022, down from 8.7% in May, the Office for National Statistics (ONS) reported on 19 July. Economists polled by Reuters had forecast an increase of 8.2%. 

“Inflation slowed substantially…driven by drops for motor fuels,” ONS chief economist Grant Fitzner said in a statement.

Core inflation, which strips out volatile food and energy costs and is a better guide to the underlying trend in prices, came in at 6.9%, down from 7.1% in May, which was the highest rate in 31 years.

Food price inflation also fell, to 17.3% from 18.3% in May, with prices still rising strongly last month compared with a year ago but by less than in May.

The data will provide some relief to the Bank of England, which has hiked borrowing costs at every meeting since December 2021, taking its benchmark interest rate to 5.0% last month.