By Paul Hannon
Measures announced by the U.K. government in its budget will likely lower the annual rate of inflation, Bank of England Deputy Governor Clare Lombardelli said Tuesday.
Speaking to lawmakers, Lombardelli said the central bank's economists calculate the inflation rate could be reduced by 0.4 or 0.5 percentage points from the second quarter of 2026.
The U.K.'s annual rate of inflation stood at 3.6% in October, well above the BOE's 2% target.
Last month, the BOE forecast that inflation would fall to its target in the second quarter of 2027, and indicated it would continue to lower its key interest rate at a gradual pace.
The budget measures could bring the timing of that return to target forward, and may persuade some policymakers that the key rate should be cut at a faster pace.
However, Lombardelli indicated that she would continue to favor a gradual approach.
"I worry more about the upside risks to inflation," she said. "I'm very worried that we're seeing more pressure on resources, and that leads to price rises."
Lombardelli was in the majority in voting to leave the key interest rate at 4% last month. However, investors expect the central bank to lower borrowing costs when policymakers next meet on Dec. 18.
Swati Dhingra, who voted in favor of a rate cut in November and is likely to do so again, said the budget provides "reassurance" that prices administered by the government are not going to rise sharply next year, as they did in 2025.
"The numbers are not large, but they are moving in the right direction," she told lawmakers.
The budget included a number of measures designed to cool home energy prices, and a freeze on rail fares.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
December 09, 2025 10:24 ET (15:24 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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