Feeling bad UK Inflation and Rate forecast update

Research evidence excerpt

Feeling bad UK Inflation and Rate forecast update

12 May 2026

Feeling bad EconomicsUnited Kingdom

UK Inflation and Rate forecast update

◆ With the Strait of Hormuz still closed, we move our central Elizabeth Martins

case from the ‘good’ scenario we set out to the ‘bad’ one Senior Economist, UK

HSBC Bank plc

liz.martins@hsbc.com

◆ On this basis, we now expect UK CPI inflation to rise to 4.1% +44 20 7991 2170

in November and growth to be a little slower Chris Hare

Senior Economist, Eurozone, UK and Ireland

◆ We also expect two 25bps hikes from the BoE, in July and chris.hare@hsbc.com

September, taking Bank Rate to 4.25% +44 20 7991 2995

Emma Wilks

UK Economist

Optimism waning HSBC Bank plc

emma.wilks@hsbc.com

We are adjusting our assumptions for the impact of the Middle East conflict on the +44 20 3268 5948

UK economy. Of the three scenarios we set out in March – the good, the bad and the Simon Wells

Chief European Economist

ugly – we are moving our base case from the good to the bad. HSBC Bank plc

simon.wells@hsbcib.com

Broadly, this entails Brent crude oil remaining above USD100/bbl until September, +44 20 7991 6718

and ending the year at USD84/bbl, before falling to USD75/bbl in 2027. However,

with the 12-month UK gas futures back down to their pre-conflict levels, this

inflationary development is partially offset by an outlook for energy bills which isn’t all

that far away from our previous ‘good’ scenario. All told, our new forecast profile sees

CPI inflation rising to 4.1% in November and staying around that level for four

months, before starting to come down from March 2027.

That means we now expect two rate rises from the Bank of England. The MPC did

not seem in a huge rush to hike in April, and appeared to be hoping the tightening of