FX.co ★ Bank of England reaffirms priority of bringing inflation back to 2%

Bank of England Governor Andrew Bailey told the House of Lords Economic Affairs Committee that returning consumer inflation to the target remains the regulator’s key priority. He said achieving that threshold is critical to preserving and sustaining public confidence in the bank’s monetary policy. The governor acknowledged the validity of lawmakers’ concerns that, for much of the 2020s, UK price growth has persistently remained above the 2% target. Bailey stressed that the authorities must exert firmer control over the trajectory back to stability to demonstrate to the public the realism of the regulator’s long‑term goals. He also flatly rejected a proposal voiced by some experts to formally raise the inflation target to 3% as a way to smooth the effects of recent tariff shocks.

The current data shows a slowdown in price growth. In April, UK consumer inflation fell to 2.8%. Under the Bank of England’s baseline projections, that measure is expected to be around 4% by the end of 2026, assuming a gradual easing of international energy prices in the coming months. The bank has also modeled a stress scenario. If global fuel prices resume their climb and trigger a chain reaction of higher costs across other categories of goods and services, inflation in the country could exceed 6% by early 2027. Officials emphasize that even in the worst case, the situation would be materially milder than the historic inflation peak in October 2022, when UK inflation topped 11%.