The Office for Budget Responsibility (OBR) has issued a warning that UK inflation may surpass the government’s 2% target and approach 3% by the end of 2026. This projection hinges on fluctuations in oil and gas prices, which have been destabilized by ongoing geopolitical tensions in the Middle East.
Professor David Miles, a member of the OBR’s Budget Responsibility Committee, explained, “If current price levels remain unchanged, consumer prices in the UK could be about one percentage point higher than we previously estimated by the end of the year. Earlier forecasts anticipated inflation close to 2%, but new data now suggests it could near 3%.”
He added that while the situation is not as severe as the spike after Russia’s invasion of Ukraine, it is still a significant and unwelcome development with no apparent upside. “This outlook is highly volatile; conditions could shift in the coming days,” Miles noted.
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Meanwhile, Bruna Skarica, the Bank of England’s Chief UK Economist, highlighted the impact on household budgets. She projected that the energy price cap might increase by roughly 20% when it resets in July, raising the average annual energy bill from £1,641 in April to approximately £1,970.
As energy costs continue to drive inflation upward, UK households may face higher living expenses than initially expected, underscoring the ongoing challenges in managing inflation amid global economic uncertainty.