Chancellor Confirms 2% Inflation Target for Next 12 Months

The Chancellor has formally written to the Bank of England’s Monetary Policy Committee (MPC) to reconfirm the UK’s inflation target at 2% for the next 12 months, as measured by the Consumer Prices Index (CPI).

The letter notes that inflation has fallen significantly from its October 2022 peak of 11.1%, and underlying inflationary pressures continue to ease. The Chancellor also highlighted that measures announced at the recent Budget are expected to further reduce inflation by around 0.4 percentage points in 2026-27.

Overall, while the confirmation of the target for the MPC is largely status quo, it does provide clarity for businesses and financial markets.

Whether the Budget announcements will achieve the desired decrease the Chancellor hopes for remains to be seen. However, the expectation is that inflation will ease and the Bank of England base rate will continue to reduce over the next 12 months, with many considering a rate cut later in December a possibility.

See: https://www.gov.uk/government/publications/monetary-policy-remit-budget-2025