The British Chambers of Commerce (BCC) has issued a warning that UK inflation is expected to increase throughout the remainder of the year, compelling the Bank of England to implement gradual interest rate cuts of 0.1 percentage points over the next twelve months.

In its recent quarterly forecast for the UK economy, the BCC predicted that consumer price inflation will climb steadily, reaching 2.6 percent by year-end, and will not dip to the Bank of England’s target of 2 percent until early 2027. The lobby group attributes this prolonged price growth to persistently high energy costs, robust wage increases, and uncertainty in global trade.

This enduring inflationary pressure is likely to limit the monetary policy committee’s actions to just one modest interest rate cut this year, reducing the base rate from 5 percent to 4.9 percent. The last decrease, which occurred last month, was by 0.25 percentage points. Since the COVID-19 pandemic began in 2020, the bank has not engaged in incremental rate reductions when borrowing rates were nearly at 0 percent.

The BCC’s inflation forecast is less optimistic than the Bank of England’s own estimates, which predict inflation will fall and stabilize around the 2 percent target beginning in 2026. Currently, consumer price inflation stands at 2.2 percent, having increased for the first time in six months in July, largely due to soaring global energy prices. Economists generally anticipate a continued rise in inflation for much of the year, especially following a hike in household gas prices implemented by Ofgem in October.

The concerning inflation outlook suggests that the Bank of England will likely adopt a more cautious strategy, enacting a series of small cuts that could see the interest rate drop to 4.3 percent by the end of 2025, and further to 3.8 percent by the end of 2026, as stated by the BCC.

The industry body also forecasts economic growth at 1.1 percent for this year and 1 percent for the next, noting an acceleration of 0.7 percent in Q1 followed by 0.6 percent in Q2, with expectations of a slowdown as the year progresses.

Vicky Pryce, head of the BCC’s economic advisory council, remarked that UK growth is unlikely to gain significant momentum in the near future. She commented, “While domestic demand should benefit from a gradual decrease in interest rates and increases in real wages as inflation stabilizes, businesses will continue to face challenges in investment due to ongoing global economic and political uncertainties, coupled with a cautious governmental assessment of its fiscal position and indications of difficult decisions ahead in the budget.”