What's happened
The Bank of England expects that the UK government’s recent budget measures will reduce inflation by 0.4 to 0.5 percentage points from mid-2026. Deputy Governor Clare Lombardelli highlighted energy bill cuts and fuel duty freezes as key factors, with the Bank considering interest rate adjustments accordingly.
What's behind the headline?
The Bank of England’s forecast underscores a cautious optimism about inflation easing, driven primarily by government measures targeting household costs. Lombardelli’s statement indicates that short-term inflation will be influenced by visible cost reductions, especially energy bills, which can shape consumer and business expectations. However, the potential for future inflation increases remains, as higher employment costs and increased government spending could push prices upward. The Bank’s consideration of interest rate cuts next week reflects a balancing act: supporting economic growth while preventing inflation from rebounding. The forecast also suggests that fiscal policy will have a temporary deflationary effect, but the long-term outlook depends on how these policies interact with broader economic factors, including energy costs and wage pressures.
What the papers say
The Guardian reports that the Bank of England expects a 0.4 to 0.5 percentage point reduction in inflation from mid-2026, citing early analysis and matching the Office for Budget Responsibility’s estimates. The Independent highlights Lombardelli’s comments on the short-term impact of household bill measures and the Bank’s cautious approach to interest rate adjustments, emphasizing that inflation is expected to peak at 3.8% and then decline. Reuters confirms the Bank’s forecast, quoting Lombardelli’s statement that these measures will reduce inflation by 0.4 to 0.5 percent for a year from the second quarter of 2026, aligning with the OBR’s projections. The articles collectively illustrate a consensus that government policies are expected to temporarily curb inflation, but with ongoing risks from rising costs and fiscal spending.
How we got here
The UK government recently announced a £26bn package of tax increases and measures to ease living costs, including removing green subsidies from energy bills and freezing rail fares. These policies aim to address public finances and inflation, which has fluctuated due to rising food and energy costs, despite recent falls from over 11% in late 2022 to 3.6% in October 2025.
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Rachel Jane Reeves is a British Labour Party politician serving as Shadow Chancellor of the Duchy of Lancaster and Shadow Minister for the Cabinet Office since 2020. She has been the Member of Parliament for Leeds West since 2010.
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The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based.
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Clare Lombardelli is a British economist. She will be the deputy governor for monetary policy of the Bank of England from 1 July 2024, and will be on the nine-member monetary policy committee (MPC).
She earned a bachelor's degree in philosophy, politics.