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The Bank of England’s deputy governor has indicated that the recent Budget introduced by the chancellor could reduce inflation by around 0.5% starting next year. Clare Lombardelli, speaking to the Commons’ Treasury committee, highlighted that the initiatives unveiled by Chancellor Rachel Reeves in November are expected to slow the pace of rising prices from April 2026 onwards. Among the key measures, Lombardelli mentioned the capping of fuel duty, reductions in energy costs, and a freeze on rail fares as principal factors contributing to a decrease in inflation.
Currently, UK inflation is at 3.5%, with forecasts from the Office for Budget Responsibility (OBR) predicting a decline to 2.5% next year before stabilizing at the Bank of England’s target rate of 2% by 2027. When questioned about the Budget’s effects on inflation, Lombardelli stated, “We think it will reduce inflation by between 0.4% and 0.5% for a year from the second quarter of 2026.” She explained that this reduction is mainly due to the mechanical effects of changes in energy prices, fuel duties, fewer electric vehicles, and rail fare adjustments, emphasizing that these factors represent the largest influence on inflation.
In her second Budget, Chancellor Reeves extended a 5p cut in fuel duty until September of next year, removed green levies from energy bills and general taxation—saving households approximately £88 annually—and eliminated a customer-funded scheme aimed at improving home insulation for low-income families, which saves an additional £59 per household. Additionally, the government implemented a freeze on rail fares until March 2027, a move that breaks from the traditional annual increases based on the retail price index plus 1%.
Despite these measures, new plans will introduce a mileage-based road tax starting in April 2028 for electric and plug-in hybrid vehicles, with rates set to rise in line with inflation. Electric car drivers will face a charge of 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile. Clare Lombardelli’s remarks offer support to Chancellor Reeves, who aims to control inflation and relieve cost-of-living pressures. On the broader economic impact, Lombardelli acknowledged some short-term growth, predicting a 0.2% GDP increase in 2027, though she described the overall effects as “quite small.” Meanwhile, Conservative leader Kemi Badenoch attributed the recent Budget to rising inflation, criticizing the chancellor’s tax and spending approach
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