Bank of England forecasts CPI at 3% in Q1 2027, GDP growth slows to near zero

The Bank of England’s latest Monetary Policy Report projects CPI inflation hitting 3% in early 2027, with GDP growth slowing to near zero by Q3 of this year.

CPI inflation came in at 3.3% in March 2026. That’s well above the Bank of England’s 2% target, and projections suggest it will stay above 3% throughout late 2026 before hovering around that level into early 2027.

The culprit is largely energy prices, driven higher by escalating conflicts in the Middle East. It’s a supply-side shock, which is the kind central banks hate most because rate hikes punish demand without fixing the underlying problem.

GDP growth has been essentially flatlined, estimated at around 0.2% for recent quarters. The Bank projected 0.5% growth for Q1 2026 before a decline, with the trajectory pointing toward near-zero growth by Q3.

Against this backdrop, the Monetary Policy Committee voted 8-1 on April 29 to hold the Bank Rate at 3.75%. One dissenting member wanted a 0.25 percentage point increase, essentially arguing the inflation threat warranted tighter policy even at the cost of further economic pain.