The Bank also considers other measures, external, such as “core inflation” when deciding whether and how to change rates.
Core inflation doesn’t include food or energy prices because they tend to be very volatile, so can be a better indication of longer term trends.
This was 3.7% in January, up from 3.2% in December 2024.
After the October Budget, the Bank predicted that the policies it contained – including an increase in National Insurance Contributions paid by employers – would lift inflation slightly as businesses passed on their increased costs through higher prices.
In February, governor Andrew Bailey warned that the Bank’s approach to future cuts would be “gradual and careful” because of increased economic uncertainty.
The Bank expects inflation to spike at 3.7% between July and September 2025 due to higher energy prices, water bills and bus fares.
It then thinks inflation will drop back towards the 2% target towards the end of 2027, having previously predicted this would happen earlier in the year.
The next interest rate announcement is on Thursday 20 March.
