Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research (NIESR), a think tank, has suggested that there could be a “precautionary” rate rise later this summer.
Inflation slowdown likely temporary
Today’s slowdown in April inflation to 2.8% may look promising, but this is likely as low as it gets for some time. The decline relative to March largely reflects base year effects dropping out rather than any easing of inflationary pressure.
We anticipate that inflation will trend higher through much of 2026, heading towards 4% by the end of the year. 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.
Energy costs set to rise
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. Meanwhile, UK gilt yields are now at multi-year highs which reflect market expectations that elevated inflation will prove persistent, reinforcing the view that the Monetary Policy Committee may deliver a precautionary rate rise later this summer.
