The British Budget Office (OBR) has forecast average inflation to rise to 2.5% in 2026, higher than the 2.1% forecast made in March. The increase comes as the government prepares for the presentation of a new budget by Chancellor of the Exchequer Rachel Reeves.
Inflation in the 12 months to October remained high at 3.6%, suggesting price pressures are still ongoing despite signs of easing in recent months. The rising costs have led the OBR to raise its 2025 inflation forecast to 3.5%.
The OBR now expects the Bank of England’s 2% inflation target to be reached only in 2027, a year later than previously expected. This suggests that the process of price stabilisation in the UK will take longer than previously expected.
Official data last week showed October inflation eased to 3.6%, reinforcing market confidence that the Bank of England will cut interest rates by 25 basis points at its December meeting.
While price pressures are expected to ease gradually, the outlook for higher inflation over the next two years signals that fiscal and monetary policies will still need to be cautious to balance economic growth and price stability.
