Inflation set to stay above 2% for next four years, says OBR

UK inflation is set to be higher than expected for the next four years and remain above the Bank of England’s target rate, according to the fiscal watchdog.

The Office for Budget Responsibility (OBR) increased its inflation forecasts for the short term, pointing towards continued pressure on household finances.

Chancellor Rachel Reeves, delivering her first Budget, told Parliament on Wednesday that the forecaster has predicted that Consumer Prices Index (CPI) inflation will average 2.5% this year.

In its previous projections in March, the OBR pointed to 2.2% price growth for the year.

Petrol prices

It comes despite inflation dropping to a three-year low of 1.7% in September after a sharp slump in petrol prices.

Ms Reeves also confirmed that the Government will maintain the 2% inflation target rate for the Bank of England.

The central bank cut interest rates to 5% from a 16-year high of 5.25% in August, but higher-than-expected inflation could put pressure on expectations that borrowing costs will come down further quickly.

2025

The latest OBR forecasts also indicate that inflation will rise to 2.6% in 2025 – significantly above the 1.5% rate previously predicted.

It also increased projections for the following three years, with inflation expected to hit 2.3% for 2026, 2.1% for 2027 and 2.1% for 2028.