The Bank of England predicts that recent fiscal measures unveiled in the UK budget will shave between 0.4 and 0.5 percentage points off the nation’s annual inflation rate, beginning around the second quarter of 2026. Deputy Governor informed lawmakers that internal analysis by central bank economists indicates the package — including energy-price changes, duty adjustments and other tax and spending measures — should exert downward pressure on headline inflation.

The announcement followed a November budget delivered by in which the government made lowering inflation and easing the cost of living primary objectives.

The budget separately aims to stabilise public finances and create conditions for future interest-rate cuts.

Markets and analysts welcomed the BoE’s view, noting it aligns with the estimate from the independent fiscal watchdog, the Office for Budget Responsibility, which earlier forecast a similar reduction in inflation in the 2026/27 financial year.

Some institutions now expect UK inflation to fall further — potentially nearing the Bank’s 2 percent target — by mid-2027, contingent on additional supply-side developments.

However, Lombardelli also cautioned that other inflationary pressures, especially rising wage growth and tight labour-market conditions, remain a concern.

She argued that while fiscal support may ease price pressures mechanically, the Bank must remain vigilant — particularly as it edges closer to the end of its rate-cut cycle.

The central bank left its policy rate at 4 percent in November amid a narrowly split decision by its Monetary Policy Committee.

Analysts emphasise that while the budget measures could bring noticeable relief to household budgets and set the stage for lower borrowing costs, realising sustained disinflation will also require broader structural adjustments — including stable energy markets, restrained wage demands and improved productivity.

The interplay between fiscal support and monetary prudence will likely shape the UK’s economic path well into 2026.