U.K. Inflation Seen at 2.3% in 2026

• British consumer price inflation is set to average 2.3% ​in 2026, according to estimates ‌from the Office for Budget Responsibility (OBR), finance minister Rachel Reeves said in ​a budget update speech ​on Tuesday, March 3, 2026. In November, when Reeves announced ⁠a full budget, the OBR ​noted that it expected inflation of ​2.5% this year.
• Since then, inflation readings have come in lower than expected and ​are likely to fall close ​to the Bank of England's 2% target ‌in ⁠ The OBR expressed that it now expected inflation in 2027 and 2028 of 2.0%, in line ​with November's ​forecasts.
• The watchdog's ⁠forecasts were made before the recent escalation of ​conflict in the Middle ​East ⁠, which has pushed up global energy prices and raised concerns among ⁠investors ​about a fresh ​rise in inflation. The OBR noted that such an outbreak could have a "very significant" impact on the global and United Kingdom (U.K.) economies.
• The latest OBR forecast also showed growth estimates for both 2027 and 2028 have been revised up to 1.6%, from 1.5% previously. Gross domestic product (GDP) per person, an indicator of changes in living standards, is "marginally higher" than in the November forecast and is now forecast to grow by an average of 1.1% a year between 2026 and 2030. The unemployment rate is also expected to peak at 5.3% this year, up from 4.9% predicted at the Budget.
• Finally, the government's total tax take is forecasted to hit a "historic high" by 2030-31, rising to almost 38% of GDP. The "headroom", or buffer, that Reeves has against her rule not to borrow to fund day-to-day spending in five years' time has increased from £21.7Bn to £23.6Bn. This increase in the "headroom" could give Reeves "a bit more money to play with come the Budget in the autumn," said Paul Dales, chief UK economist at Capital Economics. "But that could be swamped by events in the Middle East raising U.K. inflation and weakening U.K. GDP growth."

(Sources: Reuters & BBC)