The UK Treasury and the Office for Budget Responsibility are not known for delivering good news at convenient times. Their latest projection is no exception: CPI inflation is expected to hit 3.2% for the fourth quarter of 2025, part of a broader upward revision that has the annual inflation rate climbing from 2.5% in 2024 to 3.2% across 2025.
What the numbers actually say
Inflation is projected to hit 3.1% in Q2 2025, accelerate to 3.3% in Q3, and remain elevated through Q4. The peak, according to the forecast, lands in July 2025 at 3.8%, driven by energy prices, food costs, and increases in regulated prices across essential goods categories.
December 2025 recorded an actual year-on-year CPI reading of 3.4%, up from 3.2% in November, which suggests the trajectory is tracking above the OBR’s baseline projections rather than below them.
The Bank of England has been navigating a delicate balancing act between cutting rates to stimulate a sluggish economy and keeping monetary policy tight enough to prevent inflation from re-entrenching. A forecast that keeps inflation above 3% through the back half of the year makes that balancing act considerably harder.
