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Inflation slowed to 2.6% in the 12 months to June, down from 2.8% in May, according to the latest data from the Office for National Statistics (ONS), with easing food and fuel costs behind the fall.
Core inflation, which strips out more volatile food and energy prices, held steady at 2.6% in June, the same as in May, while services inflation also remained the same in June at 3.6%. Food inflation slowed to 1.7% in June, down from 2.2% in May, helped by easing chocolate, fat and sugar prices.
You can read about some of the ways you might be able to reduce your food costs in our guide 21 ways to save money on your food bills.
Meanwhile, the Retail Prices Index (RPI) measure of inflation, which includes housing costs, eased to 3% in the 12 months to June, down from 3.1% in May.
Kevin Brown, savings specialist and Scottish Friendly, said: “A dip in inflation in June creates a striking disconnect between months of alarming headlines about the Middle East and an official rate that has nevertheless continued to move lower.
“People shouldn’t be complacent. Today’s figure is arguably backward-looking and may not fully reflect yet the higher energy costs households will begin to face following July’s energy price-cap change.
“The Bank of England may now decide it can hold its base rate next week rather than raise it, however policymakers are likely to remain wary of next month’s inflation reading which could present a far less comfortable picture.
“Lower inflation still means prices are rising, not falling, so UK households could consider continually reviewing savings returns, energy costs and everyday spending. For those with a suitable cash buffer and a long-term horizon, investing through an ISA could also form part of a plan to strengthen future financial resilience.”
What inflation means for you
When inflation eases, this means household living costs are rising at a slower rate than they were previously. News that it has dipped to 2.6% in the year to June is therefore welcome, although it remains well above the government’s 2% target.
Wage growth continues to outstrip the rate of inflation, although it held steady at an annual rate (excluding bonuses) of 3.4% for the three months to May. Total pay growth (including bonuses) was 4.3%.
Mike Ambery, Retirement Savings Director at Standard Life plc, said: “Today’s fall in inflation to 2.6% is no doubt a welcome boost to Andy Burnham and his new chancellor John Healey, particularly after concerns that price pressures could remain stubbornly high. However, it’s too early to assume inflation is now on a steady downward path. July’s energy price cap increase has yet to feed through into the data, while ongoing global uncertainty and the new government’s spending decisions could still influence the outlook over the coming months.
“With this in mind, today’s figures are unlikely to be enough on their own to trigger a Bank of England rate cut. Policymakers are expected to keep rates on hold next week and will want greater confidence that inflation is moving sustainably back towards the 2% target before changing course. This uncertainty is already feeding through to borrowers, with mortgage rates rising in recent weeks as lenders reassess the outlook for inflation and interest rates.”.
Inflation and your pension
September’s inflation number is usually considered the most important inflation rate of the year for those reliant on the State Pension. That’s because the increase in prices over the year to this point is usually used to calculate the rate at which certain allowances and benefits, including the State Pension, are increased the following April.
Under the ‘triple lock’ guarantee, the State Pension is guaranteed to rise by the highest of September’s inflation figure, earnings growth, or 2.5%. Earnings figures for the three months to July are used for the yearly increase, and given that these stood at 4.8% last year, that means that the State Pension increased by this amount earlier in April 2026, resulting in an annual rise of up to £575 for those receiving the new State Pension. You can find out more about this in our guide What is the pension triple lock?
Inflation holding steady for now is bad news for pensioners who need to make sure their pension lasts throughout their retirement, and the fact that it is likely to rise further in the coming months is worrying for many.
Mr Ambery said: “For households and those planning for retirement, it’s important to remember that lower inflation does not mean prices are falling, they are simply rising more slowly. The joint impact of higher food, energy and everyday costs can still make long-term saving feel difficult.
“Pension contributions may seem like an obvious place to cut back, but pausing can mean missing out on employer contributions, tax relief and potential investment growth. Therefore, where affordable, it’s important to stay engaged with your pension, review what you are paying in and maintain or even increase contributions when circumstances allow, all of which can help people build greater financial security over time.”
Retirees on the lookout for a guaranteed income will find annuities continue to offer good value. The latest data from Hargreaves Lansdown’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,875 per year from a single life level annuity, with a five-year guarantee.
Inflation-linked products are also available – one that rises by 3% per year can give a starting income of up to £5,831 per year at the age of 65 based on the same sized pension pot. As this is considerably lower than a level product, you do need to consider how long it will take the income to catch up to that of a level product.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said, “Income drawdown can play a huge role in helping retirees manage inflation long term. By remaining in the markets, it gives their investments time to grow further, though it’s important to say markets can also be volatile. A flexible approach is important to make sure you aren’t taking too much out and potentially depleting capital. Mixing and matching annuities and drawdown could be a great option. You can secure a level of guaranteed income with an annuity and then keep some flexibility when drawing an income from drawdown. You can then consider annuitising in stages, potentially securing higher incomes as you age.”
You can find out more about annuities in our guide Annuities explained and about drawdown in our article What is pension drawdown and how does it work? If you want to learn more about the impact of inflation on your retirement savings, read our article How does inflation affect my pension?
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If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide Chartered independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial adviser. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,600 reviews on VouchedFor, the review site for financial advisers.
What does it mean for interest rates and your mortgage?
The Bank of England raised the base rate 14 consecutive times since December 2021 to try to dampen inflation, and made its first base rate reduction for over four years in August 2024, taking the rate from 5.25% to 5%. This was followed by a further quarter-point cut in November 2024 and four more in February, May, August and December 2025, which means the base rate is currently at 3.75%.
The fact that inflation slowed in the 12 months to June. means we are unlikely to see interest rates change this month, although the future trajectory of rates depends on which way inflation moves next.
Swap rates, which determine fixed-rate mortgage pricing, have been volatile in recent weeks, with many lenders withdrawing and replacing deals after just a few days.
Ben Thompson, Director of Home Moving Strategy, Mortgage Advice Bureau, said: “Inflation ticking down is a reminder that in today’s geopolitical climate, mortgage rates don’t stay predictable for long. This drop puts the Bank of England’s next move back in the spotlight – albeit we currently expect no further increase to the base rate, as domestic economic performance still remains weak.
“Whether you’re a first time buyer or a remortgager coming off a cheaper fixed deal, it’s worth exploring options sooner rather than waiting later to see what happens. For both groups, locking in a rate you’re comfortable with now is often a smarter move than waiting on the chance of a better one later.”
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Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
However, even if mortgage rates ease temporarily, borrowers who locked into very low five-year fixed rates in 2021 are likely to face a sharp jump in payments when they come to remortgage, so should start planning for this as soon as possible.
If you’re worried about a potential payment shock when your current mortgage deal ends, read our articles When is the best time to remortgage? and Are you facing a mortgage timebomb?
Impact on savers
If you’re trying to save so that you have a financial buffer in place to cover rising costs, our articles How to build an emergency fund and Best instant access savings accounts may come in handy. Savings rates have risen in recent weeks, so it’s worth checking how much interest your savings are earning and switching to a higher-interest-paying account if one is available.
Adam French, Head of Consumer Finance at Moneyfactscompare.co.uk, said: “For many savers, what matters most isn’t whether savings rates rise or fall in isolation, but whether they stay ahead of inflation, and as things stand, they are doing just that and allowing many households to preserve or grow their purchasing power.
“Even more encouraging is that 1,960 open savings accounts are currently paying more than the Consumer Prices Index (CPI), giving many savers plenty of opportunity to shop around for the best deals and grow the real value of their money. The difference between an average account and one of the market-leading deals can amount to more than £140 on a £10,000 balance over a year.”
You can learn more about inflation and the impact it has on your finances in our guide What does inflation mean for my money? If you’re looking for ways you might be able to reduce your outgoings, read our article How to save money – 21 money saving tips.
Free financial support services
Millions of people are struggling financially at the moment, and although inflation has eased, it remains high, making it difficult for many to manage their outgoings.
If your debts are starting to spiral out of control, contact Citizens Advice to help you find a way forward. You can speak to an advisor through its national phone service Adviceline on 0800 144 8848 if you’re in England, 0800 702 2020 if you’re in Wales, 0800 028 1456 if you’re in Scotland and 0808 223 1133 if you’re in Northern Ireland. Alternatively, contact any of the following specialist debt advice charities:
- National Debtline (telephone 0808 808 4000)
- Debt Advice Foundation (telephone 0800 043 4050)
- StepChange (telephone 0800 138 1111)
Sarah Pennells, consumer finance specialist at Royal London, said: “Many households are still feeling the impact of the cost-of-living crisis.
“Our recent Financial Resilience research found that three in ten adults are financially fragile, while one in four, the equivalent of almost 14 million adults, think it will take them three years or more to recover financially from the cost-of-living crisis.
“That tells us that while the economic picture may be improving, many people’s finances remain on a much slower path to recovery. For them, rising prices, despite a fall in inflation, are likely to be a barrier to getting back on track.”
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