The CBI’s deputy chief economist has cautioned that UK inflation — currently 2.8 per cent — could climb to around 3.2 per cent by the end of 2026, as Middle East conflict drives energy price volatility that threatens to overshadow Andy Burnham’s early economic agenda.
Transport costs are already rising at 6.8 per cent year-on-year — their fastest pace since December 2022, the figures show — even as headline inflation held steady at 2.8 per cent in May 2026, unchanged from April. Alpesh Paleja, CBI Deputy Chief Economist, said those relatively moderate figures may represent “the calm before the storm”, with Middle East conflict already causing energy price spikes that could push inflation markedly higher in the months ahead.
Burnham became Prime Minister in late July 2026, succeeding Keir Starmer as the seventh person to hold the office since 2016. In his first week, he announced a VAT reduction on electricity bills, cuts to bus fares, and a 20 per cent cut to business property rates in England. He also pledged an additional £340 million over five years to eliminate rough sleeping, and set out plans for a 10-year economic strategy to be published later in 2026.
The Bank of England’s Monetary Policy Committee has held Bank Rate at 3.75 per cent — a decision analysts have characterised as a “hawkish hold” — with Paleja linking the cautious stance directly to heightened geopolitical risk and energy market uncertainty. According to the Bank of England’s published forecast of 30 July 2026, inflation could reach approximately 3.2 per cent by October 2026 if oil price shocks from the Iran conflict materialise. The National Institute of Economic and Social Research has forecast a higher figure of 3.8 per cent over a similar horizon, reflecting differing assumptions about the severity of energy market disruption.
For Kent, the stakes are immediate. A 20 per cent cut to business property rates would affect retailers, hospitality firms and small businesses across the county’s town centres and industrial estates. VAT reductions on electricity and lower bus fares apply England-wide, offering some relief to households already squeezed by rising transport costs. But if energy prices spike as the CBI warns, those gains could be quickly absorbed.
John Healey, previously Defence Secretary, has been appointed Chancellor of the Exchequer — a surprise choice that business groups including the CBI are watching closely for signals on tax, fiscal rules and energy policy. Some economic commentators have questioned whether Burnham’s spending commitments are compatible with his stated intention to observe fiscal and debt rules, though no formal fiscal assessment has yet been published.
Source: @CBItweets