Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research (NIESR), a think tank, believes there could be a “precautionary” rate rise later this summer. She commented that today’s slowdown in April inflation to 2.8% may look promising, but this is likely as low as it gets for some time.
Inflation Outlook
The decline relative to March largely reflects base year effects dropping out rather than any easing of inflationary pressure. O’Leary anticipates that inflation will trend higher through much of 2026, heading towards 4% by the end of the year.
Global Pressures
With the ongoing Middle East conflict keeping global oil prices elevated, the effects are becoming increasingly visible in UK petrol prices and are beginning to feed through to food prices and household energy bills. The pressure is expected to intensify further in July, with forecasts of a sharp rise in the Ofgem price cap pushing energy costs higher still.
Market Reactions
Meanwhile, UK gilt yields are now at multi-year highs, which reflect market expectations that elevated inflation will prove persistent. This reinforces the view that the Monetary Policy Committee may deliver a precautionary rate rise later this summer. O’Leary’s analysis suggests that the Bank of England might act preemptively to curb inflationary pressures before they become entrenched.
