British inflation is set to average 3.4% in 2027, the country's budget watchdog said on Wednesday 28 October 2026, following Chancellor John Healey's first Budget.

The path back to target is slow

The Office for Budget Responsibility expects price growth to peak at 3.75% in early 2027. Inflation is then expected to average 2.1% in 2028 and 2029, before reaching 2% in 2030. The OBR revised up its forecasts from its previous ones, which were prepared before the Iran war broke out at the end of February and saw inflation at 2% in each year between 2027 and 2030.

Why the forecast changed

British inflation rose more than expected to 3.5% in September, its highest since October 2025, data showed last week, as the surge in energy prices caused by the Iran war gathered steam. That energy shock is the backdrop to the whole Budget: the government paired the forecasts with a £100 energy payment for households in council tax bands A to D and an extended VAT cut on electricity, measures already covered separately on this site.

What it means for households

A longer period above the 2% target means the squeeze on household budgets lasts well into 2027, even as the Budget's energy support softens the blow. The forecasts also frame the Chancellor's room for manoeuvre: with inflation higher for longer, the cost of borrowing stays elevated, and the OBR's smaller-than-hoped fiscal headroom leaves little space for further giveaways. Readers should treat the figures as forecasts, not outcomes — the OBR's own projections have been revised sharply before, and the path depends heavily on energy prices and the course of the war.

Sources: Reuters, Reuters via Euronext.