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In 2026, the average annual inflation rate for the United Kingdom is expected to be 2.3 percent, although this may well be revised upwards due to the economic fallout of the Iran War. Like many countries, the UK has only recently recovered from a long period of high inflation, which saw the CPI inflation rate reach a peak of 11.1 percent in October 2022.

UK inflation crisis 

Although inflation gradually fell after the peak in 2022, prices in the UK had already increased by over 20 percent relative to the start of the crisis. The two main drivers of price increases during this time were food and energy inflation, two of the main spending areas of UK households. Although food and energy prices came down quite sharply in 2023, underlying core inflation, which measures prices rises without food and energy, remained slightly above the headline inflation rate throughout 2024, suggesting some aspects of inflation had become embedded in the UK economy. 

Inflation rises across the world in 2022

The UK was not alone in suffering from runaway inflation over the last few years. From late 2021 onwards, various factors converged to encourage a global acceleration of prices, leading to the ongoing inflation crisis. Blocked supply chains were one of the main factors as the world emerged from the COVID-19 pandemic. This was followed by energy and food inflation skyrocketing after Russia's invasion of Ukraine. Central bank interest rates were raised globally in response to the problem, possibly putting an end to the era of cheap money that has defined monetary policy since the financial crash of 2008.