Key facts
- UK annual inflation fell to 2.6% in June from 2.8% in May.
- Wage growth, excluding bonuses, held steady at 3.4% in the three months to May.
- Employer pay awards remained stable at 3.3% in the three months to June.
- The Bank of England is monitoring wage growth for inflation pressures.
- Financial markets anticipate potential interest rate hikes by the Bank of England by the end of 2026.
Britain's annual inflation rate eased to 2.6% in June, down from 2.8% in May, according to official figures. This slowdown was partly attributed to easing energy price surges linked to the Iran war ceasefire. Despite this, the Bank of England's target of 2% has been consistently exceeded over the past five years, with projections suggesting inflation could rise to 3% in the third quarter.
In parallel, UK wage growth, excluding bonuses, held steady at 3.4% in the three months to May, meeting economists' expectations. Employer pay awards also remained stable at 3.3% in the three months to June, according to data from HR firm Brightmine. Sheila Attwood, Brightmine's senior content manager, indicated this stability suggests organizations are finding more sustainable pay positions.
The Bank of England is closely monitoring wage growth for potential long-term inflation pressures stemming from energy price jumps. Recent labor market data showed stabilization at weak levels. Financial markets are pricing in the possibility of one or two quarter-point interest rate increases by the Bank of England by the end of 2026.