Cooler inflation hands new UK PM Burnham an early boost

Britain's annual inflation rate fell more than expected in June, driven by lower fuel prices, official data showed Wednesday, in a boost to new Prime Minister Andy Burnham's cost-of-living push. 

The Consumer Prices Index rose by 2.6 percent in the 12 months to June, down from 2.8 percent in May, the Office for National Statistics said in a statement.

Analysts' consensus forecast had been for a slowdown to 2.7 percent last month.

Much of the fall was a result of petrol and diesel prices easing as crude prices tumbled in the wake of a ceasefire between the United States and Iran.

However, analysts expect the inflation dip to be short-lived as fresh fighting in the Middle East this month led to the collapse of a preliminary peace deal, pushing oil prices back up.

Burnham, who became prime minister on Monday, has pledged to ease cost-of-living pressures, unveiling a tax cut on household electricity prices and a £2 ($2.70) cap on single bus fares in his first days in the job.

"Falling inflation is news families want to hear but there is much more to do to give people the breathing space they need," said newly appointed finance minister John Healey.

"We have chosen to focus on the cost of living in our first week, signalling that concern for working people will be at the heart of everything we do," he added.

Burnham announced that value-added tax (VAT) would be taken off electricity bills from October in a policy costing the Labour government about £850 million in the current UK financial year.

The measure's start date coincides with an expected rise in the UK energy regulator's price cap on electricity and gas bills, a consequence of the ongoing US-Iran war that will likely spur inflation.

"Higher inflation is still coming," said Paul Dales, chief UK economist at Capital Economics.

"The lagged effect from high energy prices will probably lift inflation above 3.0 percent in September and to about 3.5 percent early next year," he said.

Higher inflation meanwhile risks hikes to UK interest rates, analysts said.

The new PM has said he wishes to ease pressure also on small businesses, hit by the previous Labour administration's tax hikes.

At the same time, Burnham has pledged to respect the strict fiscal discipline seen under his predecessor Keir Starmer, whereby the government balances tax receipts with day-to-day state spending.

Official data Tuesday showed UK government borrowing dropped more than expected in June, handing a boost Healey, who replaced Rachel Reeves as chancellor of the exchequer.

"While the general trend in the data is encouraging... the latest flare up in US-Iran tensions and the spike in oil prices means that it is unlikely to last, regardless of the cost-of-living measures deployed by the Burnham administration," said Matthew Ryan, head of market strategy at Ebury.

Burnham's long-term goal is a "reindustrialisation" of Britain and mass building of municipal housing.