LONDON: UK inflation is set to be higher than expected for the next four years and remain above the Bank of England’s target rate, according to the fiscal watchdog.
The Office for Budget Responsibility (OBR) increased its inflation forecasts for the short term, pointing towards continued pressure on household finances.
Chancellor Rachel Reeves, delivering her first Budget, told Parliament on Wednesday that the forecaster has predicted that Consumer Prices Index (CPI) inflation will average 2.5 per cent this year. In its previous projections in March, the OBR pointed to 2.2 per cent price growth for the year.
It comes despite inflation dropping to a three-year low of 1.7 per cent in September after a sharp slump in petrol prices. Ms Reeves also confirmed that the Government will maintain the 2 per cent inflation target rate for the Bank of England. The central bank cut interest rates to 5 per cent from a 16-year high of 5.25 per cent in August, but higher-than-expected inflation could put pressure on expectations that borrowing costs will come down further quickly. The latest OBR forecasts also indicate that inflation will rise to 2.6 per cent in 2025 – significantly above the 1.5 per cent rate previously predicted. It also increased projections for the following three years, with inflation expected to hit 2.3 per cent for 2026, 2.1 per cent for 2027 and 2.1 per cent for 2028.