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The Autumn 2025 Budget, scheduled for 26 November, is expected to deliver substantial fiscal tightening. Independent forecasts estimate a tax-raising package in the region of £20–40 billion, with several analyses clustering around £38 billion. Such consolidation typically suppresses aggregate demand, reinforcing weaker output growth and adding to disinflationary pressure.

Despite the Bank of England’s continued hawkish stance and a Bank Rate of 4%, inflation has remained elevated relative to other advanced economies, leaving markets cautious about the UK’s policy credibility. Structural pressures—particularly in services, where labour-cost growth has been persistent—have kept underlying price dynamics sticky. Food price inflation has also proven volatile, complicating the near-term trajectory. Although sentiment toward fiscal discipline has improved, uncertainty surrounding the Budget’s composition has kept investors alert to the risk that fiscal choices could undermine rather than support the disinflation process.

Headline CPI inflation slowed to 3.6% YoY in October, the first monthly decline since the spring. Lower electricity and gas prices—driven in part by movements in the energy price cap—contributed to the easing in housing and household services inflation. Services inflation also decelerated. However, food inflation picked up again in October after stabilising in the prior month, highlighting an area of renewed risk ahead of the December Monetary Policy Committee meeting.

Turnleaf expects UK inflation to continue easing over the next 12 months, reaching roughly 2% YoY by September 2026, but the path will be slow and uneven (Figure 1 – PAID). The sharp fiscal shock delivered in the April 2025 Budget creates a favourable base effect from April 2026 onward, with milder spending growth and tighter fiscal conditions reducing demand-side pressure and mechanically pulling down headline inflation. This should drag services inflation lower as well, though not below the 3% YoY range given still-elevated wage growth and persistent price stickiness in housing and labour-intensive sectors.

Key downside risks to inflation include any abrupt weakening in the labour market, sharper-than-expected retrenchment in household spending, or stricter government expenditure that curtails multiplier effects across the economy. Upside risks remain concentrated in food and inflation expectations. Turnleaf is tracking UK food-price dynamics via its proprietary high-volatility subcomponent indices—particularly red meat, one of the most sensitive global inputs. These indicators are currently subdued, reinforcing the view that food inflation should continue to decline, but in a gradual and irregular manner (Figure 1).

Figure 1

Interpreting the Recent Gilt Selloff
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