UK Inflation Could Remain Above Target Until 2030 as Economists Accuse Bank of England of Falling Behind: Britain could face several more years of stubborn inflation, with price increases potentially remaining above the Bank of England’s official target until the end of 2030. Economists have warned that the central bank may have been too slow to respond to rising prices, increasing the risk that inflation becomes a permanent feature of the UK economy.
The warning comes from the National Institute of Economic and Social Research (Niesr), which believes the Bank of England has fallen behind the curve in its handling of monetary policy. Its economists argue that delayed interest rate decisions have allowed inflationary pressures to persist, potentially making the task of bringing prices under control considerably more difficult.
The assessment raises fresh concerns for British households already struggling with the cost of living. Although inflation has eased from the exceptionally high levels recorded in previous years, it remains above the central bank’s 2 per cent target. The latest figures show that UK inflation climbed to 3.5 per cent in September, while the Bank of England has warned that it could increase sharply, potentially reaching 6 per cent next year.
Such a development would represent another significant setback for efforts to restore price stability. If inflation accelerates again, households could face renewed increases in the cost of groceries, energy, transport, housing and other everyday essentials. Businesses would also have to deal with higher operating expenses, potentially passing additional costs on to consumers.
Niesr economists believe the Bank of England’s response has been insufficiently aggressive, particularly given how long inflation has remained above its desired level. According to the organisation, inflation has exceeded the central bank’s 2 per cent target almost continuously since August 2021, apart from a handful of months in 2024.
James Smith, a chief economist at Niesr, questioned whether policymakers were taking sufficiently decisive action to prevent another prolonged period of rising prices.
He warned that Britain could repeat the mistakes of previous inflationary periods if the central bank failed to respond adequately. Smith argued that the Bank had not been active enough so far and was already behind the curve. He also cautioned that allowing inflation to become embedded in the economy could eventually force policymakers to introduce further interest rate increases.
The concern is that businesses and workers may gradually adjust their expectations around higher prices. Companies could continue increasing prices to protect their profit margins, while employees might demand larger wage increases to compensate for rising living costs. This can create a cycle in which wages and prices continue pushing each other higher, making inflation more difficult to control.
The Bank of England has already begun changing its interest rate approach. Last week, it increased borrowing costs from 3.75 per cent to 4 per cent, marking the first interest rate increase since August 2023.
The decision represents an important shift after an extended period without rate increases. Higher interest rates are one of the central bank’s primary tools for controlling inflation. By making mortgages, credit cards, personal loans and business borrowing more expensive, policymakers aim to discourage excessive spending and reduce demand across the economy.
However, the strategy also carries economic consequences. Households with variable-rate mortgages could see their monthly repayments increase, while people looking to purchase homes may find borrowing less affordable. Businesses dependent on loans could delay expansion, reduce investment or reconsider recruitment plans.
This creates a difficult balancing act for the Bank of England. Raising interest rates too aggressively could weaken economic activity, increase financial pressure on households and businesses, and potentially push the economy towards recession. Moving too slowly, on the other hand, could allow inflation to remain elevated for longer.
The latest Niesr assessment suggests that Britain’s inflation problem may be considerably more persistent than policymakers would like. A forecast extending above the 2 per cent target until December 2030 would mean the country could experience nearly a decade of inflationary pressure dating back to 2021.
For millions of households, the consequences could extend beyond higher supermarket bills and energy costs. Persistent inflation gradually reduces purchasing power, meaning people need more money to maintain the same standard of living. Savings can also lose value when the returns they generate fail to keep pace with rising prices.
The Bank of England now faces the challenge of restoring confidence in its ability to control inflation while avoiding unnecessary damage to economic growth. Whether its latest interest rate increase will be sufficient remains uncertain.
Niesr’s warning suggests that Britain’s fight against inflation is far from over, and households could continue feeling the financial consequences for several years.
