UK Budget Office Forecasts Inflation at 3.4% in 2027
Key Facts
The UK Office for Budget Responsibility expects consumer price inflation to reach 3.4% in 2027, according to its forecasts published alongside the 28 October 2026 budget. That follows an inflation estimate of 3.1% for 2026, while the office expects the rate to ease to 2.1% in both 2028 and 2029, then to 2.0% in 2030 and 2031. The document sets out this annual path alongside a more detailed estimate of price trends over the coming quarters. Inflation is forecast, according to the office, to peak at 3.8% in the first quarter of 2027. It is then expected to return to the Bank of England’s 2% target by the third quarter of 2028.
The forecasts link rising prices to the effects of the Middle East conflict on energy. A Treasury document presenting the office’s estimates said the conflict had directly affected the inflation outlook through higher energy prices. It added that the impact had indirectly extended to production and transport costs. The document said inflation reached 3.5% in September, with most of the increase coming from conflict-related motor fuel inflation. This path puts the expected price peak in early 2027 above the central bank’s target, before prices are expected to return to it in the third quarter of 2028.
The annual inflation rate, measured by the Consumer Prices Index, rose to 3.5% in the 12 months to September, from 3.1% in August, according to the Office for National Statistics. The office identified transport, particularly motor fuel, as the largest upward contributor to the monthly change in the annual inflation rate. Core inflation also rose to 2.8% in September from 2.6% in August. Services inflation increased to 3.7% from 3.4% over the same period. These readings show that September’s acceleration included components beyond fuel, while the budget document attributed most of the increase to motor fuel.
Price pressures coincide with forecasts for slower economic growth next year. The Office for Budget Responsibility raised its forecast for gross domestic product growth to 1.2% in 2026, but expects growth to slow to 1.0% in 2027. The document said higher energy prices were weighing on consumers and businesses, alongside the effects of high interest rates. For household incomes, the office expects real disposable income per person to fall 0.6% in the 2026-27 fiscal year. It then expects this income to record average annual growth of 0.6% over the rest of the forecast period.
In a separate estimate, the government said budget measures intended to give households some breathing room are expected to reduce inflation by 0.1 percentage points in 2027. The estimate appeared in the budget document itself, which presents the Office for Budget Responsibility’s forecasts separately from government measures. The office’s March forecasts had put consumer price inflation at 2% in each year from 2027 to 2030. The October forecasts raised the 2027 estimate to 3.4%, before the projected rate declines in subsequent years. This reflects a clear shift in the estimated price path between forecast rounds, amid the energy-related pressures cited in the document.
On monetary policy, the Bank of England kept its interest rate at 3.75% in its decision published on 17 September and set 5 November 2026 as the date of its next decision. The bank says higher energy prices could push inflation higher still. Another upcoming date is the publication of the October Decision Maker Panel survey data on 30 October 2026. The Bank of England describes the survey as monthly and says it covers finance directors at small, medium-sized and large UK businesses. The next official inflation reading, for October, is scheduled for release on 18 November 2026.