UK Budget Expected to Reduce Inflation by 0.5 pp Next Year, BoE Deputy Governor Says

The UK's Budget could knock half a percentage point off inflation next year, according to Clare Lombardelli, Bank of England deputy governor. Measures announced by Chancellor Rachel Reeves in November, including capping fuel duty, cutting energy prices, and freezing rail fares, are expected to slow price increases from April 2026. UK inflation currently stands at 3.5%, with the Office for Budget Responsibility forecast suggesting it will drop to 2.5% next year. Lombardelli expects the budget to reduce inflation by between 0.4% and 0.5% for a year from the second quarter of 2026. The measures will have a "short-term" impact on economic growth, adding 0.2% to GDP in 2027. Lombardelli's comments will be a boost to Reeves as she seeks to control inflation and ease cost of living pressures facing households.