Persistent Inflation Surpassing 3% Projected Through 2025 and Beyond

In a recent article penned by Professor Huw Dixon, the focus is on Macro-Economic Modelling and Forecasting, providing insights into the current and future prospects for inflation in the United Kingdom.

The latest data reveals that annual inflation, as measured by the Consumer Prices Index (CPI), has risen to 5.0% in July, up from 4.7% in June. This increase is partly due to a rise in goods price inflation, which climbed from 2.4% to 2.7%.

Core inflation, which is the CPI excluding food and energy, also saw a slight increase, rising from 3.7% to 3.8%. However, the NIESR trimmed mean inflation measure has remained stable at 1.9%.

The forecast assumes that geopolitical tensions do not deteriorate. Under all three scenarios - low, medium, and high - inflation remains above 3% until March 2026.

In the low scenario, inflation each month is equivalent to 1% per annum (0.08% per calendar month). Even with this scenario, inflation remains above 2% over the same period and above 3% until November 2025. The medium scenario assumes that the new inflation each month is equivalent to 2% per annum or 0.17% per calendar month. In this case, inflation in August might fall to 3.6%, but could increase slightly to 3.8% in the "very high" scenario, which assumes that the new inflation each month is equivalent to 5% per annum (0.4% per calendar month).

Direct effects of tariffs on UK inflation are minor, but the fallout from the US-China trade war might have adverse effects on particular supply chains in Britain. It's worth noting that the inflation dropout from the same months the year previously was -0.18%.

The latest ONS data on wages (April to June 2025) shows annual inflation for regular earnings remaining high at 5.0%. The new inflation in the month from June to July 2025 was 0.06%.

For further analysis and in-depth understanding of the factors influencing inflation in the UK, readers are encouraged to explore the NIESR CPI Tracker, Economics Observatory articles such as "When will UK inflation return to the Bank of England's target of 2% a year?", "How does Inflation affect the economy when interest rates are near zero?", "How are rising energy prices affecting the UK economy?", and the NIESR Economic Outlook.