Susannah Streeter, chief investment strategist at Wealth Club, said: “UK inflation has eased to 2.6 per cent in June, with some of the heat coming out of rapidly rising prices, offering some short respite for households and pushing the threat of interest rate hikes a little further into the distance.
“The fall was steeper than some forecasts, but it’s still above the bank’s two per cent target.
“Also, it’s not likely to be long before the temperature rises again, with fresh attacks in the Middle East and the Black Sea threatening to keep prices on the boil.
“Brent crude has raced upwards again, to trade around $93 a barrel, the highest level in six weeks, and this snapshot of prices won’t capture this unwelcome development.
“Transport costs were the biggest downward driver of the headline rate of inflation, with prices of motor fuel coming down markedly, but with oil prices becoming painfully hot again, it’ll soon show up at the pumps and filter through to other consumer prices via higher freight and energy costs.
“Core CPI, which strips out volatile food and fuel prices and is monitored closely by the Bank of England, also came in at 2.6 per cent.
“Price rises for goods have slowed quite markedly, but services inflation is proving stickier, falling only a little to 2.6 per cent, above expectations.
“The pound initially rose before losing ground as investors assessed the conflicting signals for interest rate policy.
“While the fall in the headline rate is welcome news, stubbornly high core inflation, a sluggish economy and the Middle East crisis are set to keep Bank of England policymakers on alert.
“However, it still looks likely they’ll adopt another wait-and-see stance at the meeting later this month, with an interest rate hike not fully priced in until close to the end of the year.”
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