The latest figures from the Office for National Statistics show that consumer price inflation fell to 2.1 per cent in June, the lowest reading in three years. The headline number will be welcomed by the government and the Bank of England, which has spent the better part of two years attempting to bring price growth back under control. But for many households, the fall in the inflation rate offers limited comfort.
The distinction matters. Inflation falling does not mean prices are falling — it means they are rising more slowly than before. Energy bills, grocery costs and housing expenses remain substantially higher than they were in 2021. A family that has adjusted its budget to cope with those elevated costs is not suddenly better off because the rate of increase has moderated.
Where the Pressure Remains
Energy costs have been the most persistent source of difficulty. The energy price cap, which limits what suppliers can charge domestic customers, has fallen from its peak but remains above pre-crisis levels. The government's energy support schemes, which provided direct payments to households during the worst of the crisis, have now ended. Charities working with low-income families report that fuel poverty remains a significant problem, particularly for older people and those in poorly insulated homes.
Food prices have also stabilised but not reversed. Supermarket data suggests that the average weekly grocery bill for a family of four is still roughly 18 per cent higher than it was three years ago. Own-brand and value ranges have seen stronger sales as shoppers continue to trade down.
The Bank of England's Position
The Bank of England's Monetary Policy Committee is expected to consider a further reduction in the base rate at its next meeting. Markets are pricing in a cut of 0.25 percentage points, which would bring the rate to 4.5 per cent. Lower borrowing costs would benefit mortgage holders on variable rates and those coming to the end of fixed-rate deals, though the pass-through to consumer lending rates tends to be gradual.
Some economists have cautioned against reading too much into a single month's data. Services inflation — which reflects wage growth and domestic cost pressures more directly than goods inflation — remains above the Bank's target. "The last mile is always the hardest," said one analyst. "Getting from two per cent to the target is not the same as getting from ten per cent to two."
Real Wages and Living Standards
Average earnings growth has outpaced inflation for several consecutive months, which means that in aggregate, real wages are rising. But the aggregate figure conceals significant variation. Workers in sectors with strong union representation or high demand for skills have seen meaningful pay increases. Those in lower-paid, less secure employment have not fared as well.
The Resolution Foundation, a think tank focused on living standards, has noted that the recovery in real wages is concentrated among higher earners. For the bottom third of the income distribution, the picture is more complicated, with benefit changes, housing costs and childcare expenses offsetting some of the gains from higher nominal wages.
For now, the official figures tell a story of gradual improvement. Whether that improvement is felt in the daily lives of the people the numbers are supposed to represent is a rather different question.