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Chancellor John Healey delivered his first Budget on 28 October, setting fiscal headroom at £15 billion for 2029/30. The measures most relevant for consumer prices extend the 5p per litre fuel duty cut and the zero rate of VAT on domestic electricity to 1 July 2027, and defer the planned RPI uprating of fuel duty to the same date, according to the HM Treasury policy costings. Markets reacted calmly, with gilt yields easing and sterling slipping slightly. On 5 November, the Bank of England raised Bank Rate by 0.25 percentage points to 4%, citing the risk that higher energy costs feed into prices more broadly.

We judge that the Budget changes the timing of UK inflation more than its level. Turnleaf’s 4 November forecast, the first to reflect the Budget’s tax schedule, projects CPI inflation rising from 3.5% in September to 4.6% YoY in January 2027 and a peak of 5.0% in June, before easing to 4.5% in September 2027 (Figure 1). We estimate that the Budget lowers annual inflation by about 0.25 percentage points in April to June 2027 relative to the previous tax schedule, and adds the same amount to the monthly change in July. Over the same period, supplier forecasts for the January energy cap have risen, which we estimate adds a similar amount to inflation from January, leaving the path close to our pre-Budget forecast.

Figure 1. ONS CPI annual rate to September 2026, Turnleaf’s 4 November 2026 forecast with its 80% model range, and the policy calendar.
(BEYOND PAYWALL)

The Budget moves tax increases from early 2027 into July

Before the Budget, the HMRC schedule raised fuel duty by 3p per litre in January 2027 and 2p in March, RPI uprating of fuel duty was due to resume on 1 April 2027, and the temporary zero rate of VAT on domestic electricity was due to end in April. The Budget defers all three to 1 July 2027, when the main fuel duty rate rises from 52.95p to 60.59p per litre, combining the 5p restoration with 2.64p of uprating. We estimate that the fuel duty steps would have added 0.06 percentage points to January CPI and 0.04 points to March, and the uprating and the return of VAT on electricity about 0.15 points to April (Figure 2). In July these effects now arrive together, adding about 0.25 points to the monthly change in CPI.

Figure 2. Estimated effect of the fuel duty and electricity VAT changes on the monthly change in CPI, under the pre-Budget schedule and the Budget 2026 schedule.

The effect on annual inflation follows a different profile. Relative to the previous schedule, the Budget lowers the YoY rate by about 0.06 points in January and February, 0.10 points in March and 0.25 points from April to June. The July increase does not add to annual inflation relative to the previous schedule, because those increases would already have occurred by then.

Other measures have smaller or indirect effects on measured inflation. The suspension of tariffs on a further 101 food products from 26 November should exert modest downward pressure on food prices. The National Living Wage rises to £13.21 an hour from April 2027, adding to services costs at the time of year when regulated and indexed prices also reset.

Energy prices add upward pressure

Turnleaf’s October nowcast stands at 0.55% MoM, well above the 0.28% implied by the model’s ten-year average for the month. October brings administered increases we estimate at about 0.20 percentage points, from the Ofgem cap rising 4% to £1,723, the exceptional one-off tobacco duty increase and the new Vaping Products Duty. Our high-frequency inputs, with data to 4 November, point to further pressure from energy.

Retail fuel prices continue to rise. The Proxyfuel retail fuel price index recorded an above-normal monthly increase in the latest reading, the third in succession, after the exceptional rises in March and April (Figure 3). Motor fuel prices were already 29.8% higher than a year earlier in September. The fuel duty freeze holds the tax component steady until July but does not offset the rise in underlying fuel costs.

Figure 3. Proxyfuel UK retail fuel price index, standardised monthly change, with data to 4 November 2026.

Wholesale gas is setting up the January energy cap reset. TTF front-month gas prices rose sharply again in the latest reading, one of the ten largest monthly increases since 2015, and have risen at an above-normal pace in every month of 2026 (Figure 4). Supplier forecasts have moved up accordingly. The average of British Gas, EDF and E.on Next forecasts for the week beginning 2 November points to a 28.8% rise in the January cap, to £2,219, and a further 6.4% in April, compared with 20.9% for January a month earlier. We estimate that the January rise would add about 0.86 percentage points to CPI. The upgrade since early October alone adds about 0.24 points from January, similar in size to the Budget’s reduction in April to June.

Figure 4. TTF front-month gas price, standardised monthly change, with data to 4 November 2026.

Oil adds to the same pressure. Brent crude rose at an above-normal pace for a third consecutive month in the latest reading, following large increases between February and April (Figure 5). Its influence on the forecast grows with the horizon, as higher crude costs feed through to fuel and transport services.

Figure 5. Brent crude oil price, standardised monthly change, with data to 4 November 2026.

Retail price trackers point to broader pressure

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