The Bank of England just delivered the kind of forecast that makes both traditional investors and crypto traders reach for the antacid. Governor Andrew Bailey is projecting that indirect inflation effects will tack on roughly 0.5 percentage points to UK inflation in the second half of 2026, pushing consumer prices further from the central bank’s 2% target at precisely the wrong moment.
With CPI inflation currently sitting at 2.6% as of June 2026, and projections pointing toward 3.3% by Q3, the UK is staring down a second half of the year where prices accelerate instead of cooling.
Energy prices and geopolitics are doing the heavy lifting
The ongoing conflict related to Iran has sent energy costs on a trajectory that the BoE’s April Monetary Policy Report flagged as a persistent concern. Those costs don’t just show up at the gas pump. They ripple through supply chains, push up production costs, and eventually land in the prices consumers pay for everything from groceries to services.
Bailey put it bluntly: without the Gulf conflict disruptions, the UK would have likely returned to its 2% inflation target around April or May of this year. Instead, the country is watching inflation move in the wrong direction, with energy costs acting as the engine behind the reversal.
