For months now, many individuals have believed that the inflation crisis plaguing the UK was finally coming to an end. Inflation had been steadily increasing and then finally stabilized. Inflation was expected to return to the 2% target set by the Bank of England.
However, it seems that all of this may not be the case after all.
More and more economists are now warning that inflation in the UK is quietly staying high and may even rise again in 2026, especially due to energy prices and the war.
Inflation Is Still Above Target
The Bank of England has been very clear regarding their intentions regarding inflation. They want it back down at the 2% target. Inflation has been steadily coming back down over the years, although it has not returned to normal.
In recent times, inflation projections have indicated that inflation may just hover above the target for much longer than expected. Inflation may reach 2.7% in 2026 instead of the expected 2%, according to MPA Magazine.
Even before the recent global events, inflation had been proving to be a problem for the UK. In fact, the Office for Budget Responsibility had previously indicated that inflation was expected to reach 2.5% in 2026, based on reporting from Reuters.
In other words, inflation never really went away. Inflation just slowed down.
Energy Prices Are Rising Again
The real problem now seems to be energy prices.
The war in the Middle East has resulted in oil and gas prices increasing significantly. This is directly affecting inflation in the UK.
Economists are now indicating that inflation may rise again due to energy prices and the war. In fact, they estimate that energy prices may add 0.4 percentage points to inflation this year alone, according to MPA Magazine.
These research groups also point out that a temporary boost in energy costs can have a significant impact on inflation, while a sustained increase could lead to even higher inflation and slower economic growth, based on analysis from the National Institute of Economic and Social Research.
This is not theoretical; we have seen in the UK in recent times how energy shocks can drive inflation into the stratosphere.
War and Energy Create Second Wave Risk
But what of what happens next?
Economic forecasters from business groups are predicting that the global instability caused by the Middle East conflict could drive up inflation and slow down economic growth, according to the British Chambers of Commerce.
The UK is in a vulnerable position because we are so highly exposed to global energy markets. When energy prices rise, we feel the effects quickly in:
Gas and electricity bills
Transport costs
Prices of food
In fact, analysts are predicting that the economic growth forecast for households in 2026 could be completely lost if energy prices continue to rise, based on reporting from The Guardian.
The concept of inflation being “over” in the UK is no longer relevant.
Instead, we could be entering a new phase of inflation, not caused by the pandemic, but by the effects of the Middle East conflict and energy costs.
This leaves the Bank of England in a tricky position because, if inflation starts to rise again, then interest rates could remain high or rise even higher, causing even greater economic pressures on households and businesses.
What does this mean for the average person on the street?
Inflation was not “over,” but it was merely “pausing” before resurfacing again.
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