The rate of price increases in the UK fell from 8.7% to 7.9% in the year to June, according to the latest official figures.

The consumer price index measure of inflation showed a bigger than expected fall, providing welcome relief to families struggling with the cost of living crisis.

As prices continue to rise, the Office for National Statistics said the rate of increase had “slowed considerably” to its lowest annual level since March 2022.

The drop will also be good news for Rishi Sunak’s government and the Bank of England – with the city’s forecast calling for a drop to just 8.2%.

Although core inflation has eased from a 30-year high in May, it is still well above the Bank’s official 2% target, and further interest rate hikes are expected in the coming months with the aim of controlling prices.

The government said the numbers were finally “going in the right direction”. Despite the better than expected numbers, Chancellor Jeremy Hunt said “we are not complacent and know that high prices are still a huge concern for families and businesses”.

Mr Hunt added: ‘The best and only way to ease this pressure and get our economy growing again is to stick to the plan to halve inflation this year.’

ONS chief economist Grant Fitzner said food inflation had fallen only slightly, with the drop mainly due to lower petrol and diesel prices.

Supermarket inflation is back to 17.3% from 18.7% in May, but on-shelf items remain extremely expensive for shoppers in a hurry. “Food price inflation eased slightly this month, although it remains at very high levels,” Mr. Fitzner said.

The British Retail Consortium (BRC) said supply chains remained ‘volatile’ and warned Vladimir Putin’s decision to pull out of Ukraine’s grain supply deal could push prices up again. “staple” food prices in the future.

Helen Dickinson, chief executive of the BRC, said prices for cheese, fruit and fish had all fallen as lower commodity and energy costs passed through to customers, along with lower prices for children’s clothes and household appliances.

Karen Betts, chief executive of the Food and Drink Federation, said the latest figures were “encouraging”, adding. “We expect the inflation rate for food and beverage prices to continue to decline steadily over the coming months.”

But she warned that food and drink makers’ costs were a third higher than three years ago. “Russia’s decision to withdraw from the Black Sea Grains Agreement is also unnecessary and brings new risks to the global grain supply,” the food chief added.

Inflation in the UK remains the highest in the group of wealthy G7 economies, and some financial experts have predicted that the Bank of England could raise the base rate beyond 6.5% by the start. next year, which would increase mortgage rates and pressure on homeowners.

Labour’s shadow Chancellor Rachel Reeves said Britain’s inflation higher than its international peers was a ‘characteristic of Conservative economic failure’ – saying families knew prices ‘still rise at staggering rates and that they bear the burden of these costs”.

Ms Reeves added: ‘There can be global shocks – but Britain is so exposed to these because of the Conservatives’ economic failure which has led to a serious lack of security in our economy.’

Lib Dems Treasury spokeswoman Sarah Olney said the figures would be “cold comfort to countless families worried about rising mortgages”.

The latest figures raise the odds that the Bank of England – eyeing a 0.5% rise in the base rate next month – will opt for a smaller 0.25% hike.

Money-saving expert Martin Lewis said the inflation figures could be a “strong signal” of “good news” for mortgage holders taking pressure from rising interest rates. And Mohamed El-Erian, Allianz’s chief economic adviser, said it was undoubtedly “good news for those looking for mortgages”.

The Resolution Foundation said the “gross” drop in inflation was “unambiguously good news” and ended the UK’s 18-month period of falling real wages.

Research director James Smith said: “The scale of the decline will ease pressure on mortgages and wages, with the Bank of England less likely to sustain higher interest rates for longer, and Britain’s latest 18-month pay cut is coming to an end.”

However, the Resolution Foundation noted that the UK still has the highest inflation rate in the G7 and the third highest among advanced countries in the OECD. “After today, it just looks bad rather than a basket case,” Mr Smith said.

The Joseph Rowntree Foundation (JRF) has also pointed out that Britain is ‘still in the belly’ of a food price crisis – saying 5.7 million low-income families are being forced to eat less or skip meals meal.

Calling for an increase in universal credit, JRF chief economist Alfie Stirling said: “The crisis is now entering a dangerous new phase. As 2.3 million low-income families continue to take out loans to pay essential bills, rising interest rates risk triggering a second wave of material hardship even as inflation continues to fall.