UK Inflation Hits 15-Month Low as Burnham Cuts Energy VAT

The United Kingdom's annual inflation rate fell to 2.6% in June, marking a 15-month low and dipping below economist expectations of 2.7%. According to the Office for National Statistics, the decline was driven by lower costs for motor fuels, particularly diesel, alongside price drops in clothing, food, and non-alcoholic drinks.

Andy Burnham, who took office as Prime Minister on July 20, used the data to launch two cost-of-living measures during his first week in power. Effective October 1, the government will remove VAT from domestic electricity bills, reducing the rate from 5% to 0%. Additionally, single bus fares across England will be capped at £2 starting in January. Chancellor John Healey noted these changes are intended to give families breathing space and keep inflation down. The bus fare initiative is supported by £454 million redirected from the Department for Energy Security and Net Zero and international climate finance.

Separate data from the Office for National Statistics showed that house price inflation slowed to 2.7% in May, with the typical home price reaching £271,000. While markets in Northern Ireland and Scotland grew, London saw a 3.7% decline. Analysts warn that the current inflationary dip may be temporary, citing rebounding energy prices and geopolitical tensions—including hostilities involving Iran—that could push crude oil costs and inflation higher in autumn or early next year.