The Chancellor has issued a formal letter to the Bank of England’s Monetary Policy Committee (MPC), reaffirming the UK’s 2% inflation target for the next 12 months, measured using the Consumer Prices Index (CPI).

In the correspondence, the Chancellor notes that inflation has dropped markedly from its October 2022 high of 11.1%, with underlying price pressures continuing to ease. He also emphasised that measures announced in the recent Budget are forecast to reduce inflation by approximately 0.4 percentage points in 2026–27.

Although confirming the MPC’s target is largely a continuation of the existing approach, it does offer ongoing certainty for businesses and financial markets.

Whether the Budget measures will deliver the reduction the Chancellor anticipates is still uncertain. Nevertheless, inflation is expected to moderate, and the Bank of England base rate is anticipated to fall over the coming 12 months, with many suggesting that a rate cut later in December could be on the cards.

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