The Confederation of British Industry expects inflation to climb towards 4 per cent by end of 2026 as the Iran conflict drives up energy costs, with the Bank of England likely to hold interest rates at 3.75 per cent while it watches developments.
UK consumer price inflation, currently running at around 2.6 to 2.9 per cent, is set to accelerate further in the coming months, according to the CBI — with the Bank of England’s own July 2026 central projection putting the peak at about 3.2 per cent before the end of the year. The CBI goes further, suggesting inflation could reach close to 4 per cent in 2026 if energy costs continue to climb, though the organisation cautions that figure is based on its own modelling rather than official statistics.
Martin Sartorius, Lead Economist at the CBI, said the slight dip in June 2026 inflation figures was “expected to be temporary”, with inflationary pressures “likely to firm over the next few months due to the Iran conflict’s impact on energy bills and domestic prices.” He added that the CBI expects the Bank of England’s Monetary Policy Committee to keep rates unchanged in the near term, adopting a “wait and see” approach. Bank Rate has sat at 3.75 per cent for several consecutive MPC meetings.
That’s cold comfort for Kent households already stretched by higher bills. Energy tariffs, petrol prices and food costs are all sensitive to wholesale gas and oil markets — and the Iran conflict has renewed volatility across all three. Higher fuel costs hit Kent commuters hard, given the county’s heavy reliance on the M2, M20 and M25, while logistics firms operating through the Port of Dover and Port of Sheerness face rising freight and operating costs as global energy prices feed into haulage rates.
Mortgage holders and small businesses aren’t off the hook either. While the CBI considers further rate rises relatively unlikely unless the conflict escalates sharply, any cuts that might have eased borrowing costs look further away. The Bank of England’s central projection has inflation returning to the 2 per cent target around 2027, though alternative scenarios considered by the MPC suggest it could remain above target into 2028 if energy pressures persist.
The CBI is clear this isn’t 2022 again. Sartorius and colleagues consistently note that different starting conditions — weaker domestic demand, a loosening labour market — mean a repeat of the extreme inflation surge that followed Russia’s invasion of Ukraine is unlikely. Independent forecasters at the National Institute of Economic and Social Research broadly agree, projecting inflation averaging just above 3 per cent in 2026, with a potential peak nearer 3.8 per cent in early 2027 after further energy price cap adjustments — though those figures, too, are forecasts rather than confirmed outcomes.
Some economists warn that holding rates high while inflation is driven primarily by an external energy shock risks suppressing growth and employment without addressing the underlying cause. The CBI’s own UK growth forecast — roughly 1.1 per cent GDP growth in 2026 falling to 0.9 per cent in 2027 — points to a difficult period for consumer-facing businesses already reporting weaker sales.
Source: @CBItweets