Inflation slowed to 2.6% in the 12 months to June, providing new Prime Minister Andy Burnham with an early boost to his plans for taming the cost of living.
The latest data from the Office for National Statistics compares with the 2.8% rate for the year to May.
Chancellor John Healey said: “Falling inflation is news families want to hear but there is much more to do to give people the breathing space they need.
“That is why yesterday we cut VAT on electricity bills and today we’re announcing a £2 cap on bus fares [in England] from January.
“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.
“Both these changes are a win-win. They help keep inflation down, while helping people afford the essentials.”
The fall will ease pressure on the Bank of England to raise interest rates, though inflation is expected to rise again.
June saw a period of calm in the US-Iran war and reopened the Strait of Hormuz which is a vital route for oil supplies. This led to cheaper prices at the pumps.
The resumption of military strikes in the Middle East has sent oil prices back over $90 a barrel. If it stays elevated, that risks sending inflation upwards.
Martin Sartorius, lead economist at the CBI, said: “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 pass through 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.”
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