Inflation eased more than expected in June, with the Consumer Prices Index (CPI) dropping to 2.6% down from 2.8% in May, driven largely by notable reductions in food and fuel prices.

Business organisations and financial analysts have welcomed the short-term respite, though they warn that renewed geopolitical tensions and rising energy costs could spark a rebound later in the year.

Commenting on today’s data from the Office for National Statistics, Anna Leach, Chief Economist at the Institute of Directors, said: “Inflation has weakened once more in June, with food price inflation dropping back notably and energy price inflation dipping as well. This should secure another interest rate hold from the Bank of England next week. However, they will remain on alert to the ongoing disruptive impacts from renewed conflict in Iran, which will push up inflation later in the year.

“Recent policy decisions will apply modest downward pressure to inflation, including various measures to reduce household electricity bills, bus fares and encourage spending over the summer holidays. Measures that reduce the price of electricity relative to fossil fuels by shifting policy costs into general taxation are the right steps needed to hasten electrification and reduce the UK’s vulnerability to fossil fuel price volatility. This process has begun for households and now needs to be extended to businesses too.

“However, these policy decisions will have only temporary effects on inflation, although they may be helpful in tempering inflation expectations. The reality is that inflation is expected to increase further in coming months, and government policy can only alleviate that in the short-term – not undo it. As we head towards the Autumn Budget, policy will need to look to the long-term. An effectively directed state with a business environment which supports investment and employment can help drive a strong economy and better living standards across the country.”

Martin Sartorius, Lead Economist at the Confederation of British Industry (CBI), added: “Inflation ticked down slightly in June, broadly in line with our latest projection. We expect this easing will prove temporary. Inflationary pressures are likely to firm over the next few months, reflecting the ongoing impact of the Iran conflict on energy bills and some passthrough to domestic prices. Renewed tensions in the Middle East mean that households and businesses will continue to face an uncertain and volatile outlook as we head towards autumn.

“We anticipate the Bank of England’s Monetary Policy Committee to keep interest rates unchanged when it meets next week, as it maintains a ‘wait and see’ approach to the economy. Although risks remain elevated, a loosening labour market, soft domestic activity, and tighter financial conditions mean that the Committee is unlikely to raise rates in the near term.”

Financial services providers have similarly urged caution despite the softer headline figure.

Alex Beavis, Interim Director of Banking at LHV Bank, noted: “This fall in inflation is a surprise, and likely to be a temporary respite, given the forecasts for the rest of the year. Those inflation worries are being driven by the conflict in Iran, showing how events thousands of miles away can have a very real impact on the pounds in your pocket.

“Inflation is being targeted by the new Prime Minister and Chancellor, with measures such as scrapping VAT on electricity bills already announced, but it’s equally crucial for savers to be active in pursuing the best possible return on the money they set aside. Our recent research found that while the majority of savers check their balance regularly, and know exactly where it is being kept, more than half (53%) are not confident they are getting a competitive return. That rate uncertainty means savers are more likely to put up with accounts paying mediocre rates, leaving them worse off.

“By being an Active Saver, and comparing interest rates as often as you check your balance, you can ensure that no matter what happens with inflation, you are better off in the long run.”

Kevin Brown, savings expert at Scottish Friendly, also highlighted the gap between backward-looking indicators and future household pressures: “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.”