Bank of England raises inflation forecast to 4.9% by mid-2027

The Bank of England now expects CPI inflation to hit 4.9% in the second quarter of 2027, sharply up from its July projection of 3.2%, driven by higher energy prices and stronger second-round effects on wages and prices.

The Bank of England’s November 2026 Monetary Policy Report puts CPI inflation at 4.9% in 2027 Q2 — a 1.7 percentage point jump compared with the 3.2% peak the Bank forecast just four months ago. The figures show the revision is driven mainly by rising energy costs, both through direct effects on household bills and indirect effects as businesses pass higher costs on.

Second-round effects — where higher energy prices feed into wage demands and broader price-setting — are expected to add slightly more than 0.5 percentage points to inflation on average during the second half of the forecast period. That’s around 0.3 percentage points more than the Bank assumed in July.

The Bank’s staff projection places CPI inflation at around 4.5% in 2027 Q1, rising to around 5% in Q2, before the 4.9% central projection is settled on for that quarter. UK CPI inflation stood at 3.5% in September 2026, so the forecast implies a sizeable further rise over roughly 18 months.

The Monetary Policy Committee raised the Bank Rate to 4% in November 2026. But the Committee acknowledged there is limited evidence so far of second-round effects actually showing up in wage settlements or business pricing — the risk, in its judgement, has grown rather than materialised.

The energy-price assumptions underlying the forecast are based on wholesale prices averaged over the 15 UK working days to 27 October 2026. That means the projection could shift if energy markets move materially from those levels.

The Bank said it would continue monitoring how higher energy costs feed through into pay, pricing behaviour and spare capacity. Whether the 4.9% peak holds depends heavily on how quickly — and how far — those second-round effects actually develop.