UK inflation could remain above the Bank of England’s 2% target until late 2030, the National Institute of Economic and Social Research (NIESR) said, leaving policymakers to weigh a faster return to target against weaker growth.
NIESR projects annual consumer price index (CPI) inflation will peak at 4.4% in February 2027, above the 3.8% peak in its July outlook. It expects inflation to remain above the Bank’s 2% target through 2029 and return to that level in late 2030.
To bring inflation back sooner, the institute says Bank Rate may need to reach about 5%. In that scenario, it estimates inflation would return to target about 18 months earlier, while gross domestic product (GDP) growth would be 0.4 percentage points lower in both 2028 and 2029. NIESR expects one further Bank Rate increase in February 2027.
The Bank announced on Nov. 5 that its Monetary Policy Committee (MPC) had voted on Nov. 4 to raise Bank Rate by 0.25 percentage points to 4%. The vote was 8-1, with one member favoring a 0.5-percentage-point increase to 4.25%. The Bank’s November forecast put inflation at around 5% by mid-2027, then 2% in the fourth quarter of 2028 and 1.8% in the fourth quarter of 2029.
The Office for National Statistics said CPI inflation was 3.5% in the 12 months to September, up from 3.1% in August. The Bank said energy costs added about 1 percentage point to September’s inflation rate, mostly through fuel. It reported limited evidence so far that energy costs were spreading into other prices and wages, while warning those effects could emerge later.
NIESR’s concern centers on pay negotiations expected in early 2027, when its forecast puts inflation above 4%; higher wage settlements could then feed into company prices. Higher market rates are already reaching some borrowers: the Bank said benchmark two-year mortgage rates had risen nearly 50 basis points since early September.
The next UK inflation release is scheduled for Wednesday, Nov. 18. The Bank’s next rate decision is due Dec. 17.
