Key facts
- UK public inflation expectations for five or more years ahead fell to 3.7% in July.
- Year-ahead inflation expectations decreased to 3.4% in July.
- The National Institute of Economic and Social Research (NIESR) forecasts UK inflation to remain above the Bank of England's target until 2029.
- NIESR has revised its 2026 GDP growth forecast to 1.1% from 0.9%.
- The think tank predicts inflation will average 3.1% in 2026 and peak at 3.8% in February 2027.
UK public inflation expectations have continued to decline, with year-ahead forecasts falling to 3.4% and five-year expectations dropping to 3.7% in July, according to a survey by Citi and YouGov. The Bank of England closely monitors these figures to prevent embedded price pressures.
However, the National Institute of Economic and Social Research (NIESR) has warned that inflation will persist above the Bank of England's target until 2029, largely due to the energy price shock exacerbated by geopolitical events. NIESR forecasts inflation to average 3.1% in 2026, peaking at 3.8% in February 2027. The think tank also revised its 2026 GDP growth forecast upward to 1.1% but noted the energy shock has eroded fiscal headroom.
NIESR predicts the Bank of England will likely keep interest rates unchanged through 2027, but suggests a potential increase to 4% if energy prices escalate further. The think tank also anticipates the jobless rate will peak at 5.3% in early 2027.