Boost for Reeves as Bank predicts budget will lead to cut in inflation

The Bank of England expects Rachel Reeves’s budget will reduce the UK’s headline inflation rate by as much as half a percentage point next year.

- Richard Partington Senior economics correspondent

In a boost for the chancellor after last month’s high stakes tax and spending statement, Clare Lombardelli, a deputy governor at the bank, said its early analysis showed the policies would lower the annual inflation rate by 0.4 to 0.5 of a percentage point for a year from mid-2026.

Reeves made cutting inflation a central ambition of her budget alongside a sweeping £26bn package of tax increases to cover a shortfall in the public finances and fund scrapping the two-child benefit policy.

Her measures to ease the cost of living included removing green subsidies from household energy bills and freezing rail fares. Levies on energy bills will now be paid out of general taxation, which the Treasury said could reduce bills by an average of £150 a year from next April.