Inflation Eases to 2.6% But Energy Shock Threatens Fresh Price Surge
UK inflation decreased to 2.6% in June from 2.8% in May 2026, slowing more than the expected fall to 2.7%. The fall was driven by moderating transport inflation, with diesel prices dropping 10.7 pence per litre between May and June to reach 176.4 pence per litre.
Fuel and Food Offer Relief — But Energy Clouds Loom
Food inflation cooled to 1.7%, the lowest since August 2024, from 2.2%, with the largest drag coming from sugar, jam, syrups, chocolate, and confectionery. However, the conflict in the Middle East and the associated rise in energy prices is expected to lead to higher UK inflation; prior to the conflict, the CPI annual inflation rate was expected to fall to around 2% from April and remain around 2% for the rest of 2026.
On 18 June, the Bank said that CPI inflation was expected to be "a little under 3% in 2026 Q3" and "a little over 3¼% in Q4," but since then energy prices have gone back up. For perspective, food prices have risen 39.3% from January 2021 to June 2026, compared with only 3.9% growth in the previous five-and-a-half years.
Planning Ahead on Bills and Wages
While grocery prices offer a rare win for household budgets this month, rely on this relief sparingly. Energy is the wild card—your utility bills are likely to rise sharply in Q3 and Q4. Expats calculating cost-of-living allowances or reviewing employment contracts should factor in a return to 3%+ inflation by autumn. Renters should lock in agreements now if possible, as landlords may be pricing in future energy and wage pressure.
Sources
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