Bank of England expects budget will cut inflation by up to half a percentage point

"The Bank of England expects Rachel Reeves's budget will reduce the UK's headline inflation rate by as much as half a percentage point next year. In a boost for the chancellor after last month's high-stakes tax and spending statement, Clare Lombardelli, a deputy governor at the central bank, said its early analysis showed the policies would lower the annual inflation rate by 0.4 to 0.5 percentage points for a year from mid-2026."

"Her measures to ease the cost of living included removing green subsidies from household energy bills and freezing rail fares. Levies on energy bills will now be paid out of general taxation, which the Treasury said could reduce bills by an average of 150 a year from next April. The Bank's early assessment, which matches the prediction published by the Office for Budget Responsibility alongside Reeves's statement, said the bulk of the reduction was down to the energy bills measures and the chancellor freezing fuel duty for motorists."

The Bank of England's early analysis indicates Rachel Reeves's budget will cut the UK's headline inflation rate by 0.4 to 0.5 percentage points for a year from mid-2026. The budget includes a 26bn package of tax increases to cover public finance shortfalls and to fund scrapping the two-child benefit policy. Cost-of-living measures include removing green subsidies from household energy bills, freezing rail fares, and freezing fuel duty for motorists. Levies on energy bills will be paid from general taxation, which the Treasury says could reduce bills by an average of 150 a year from next April. The Bank said longer-term inflation prospects will remain important for policy.

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