The UK is on course to have the highest inflation rate among the G7 nations this year, according to the Organisation for Economic Co-operation and Development (OECD).
The Paris-based body’s latest forecasts show that prices in Britain are set to rise faster than in other major advanced economies, adding fresh pressure on the government ahead of November’s Budget.
The OECD expects UK inflation to remain stubbornly high compared with countries such as the US, Germany, and France.
While global price pressures have eased over the past year due to falling energy costs and stabilised supply chains, the UK has struggled with persistent price growth.
Food and core services costs have proven particularly sticky, while wage growth has kept inflation elevated.
High inflation challenge for Reeves
For Prime Minister Keir Starmer’s government and Chancellor Rachel Reeves, the inflation problem is particularly sensitive.
Households have faced nearly three years of a cost-of-living crisis, with rising food bills, energy costs, and mortgage repayments. Although inflation has fallen sharply from its 2022 peak, the pace of price rises remains faster than pay for many households, eroding real incomes. Inflation is still currently nearly double the Bank of England’s target of 2%.
A stubborn inflation outlook could limit the Chancellor’s room for manoeuvre in the upcoming November Budget. Reeves is under pressure to offer relief to households while also maintaining the government’s fiscal rules.
If inflation stays high, it could force the Bank of England to keep interest rates elevated for longer, keeping borrowing costs high for homeowners and businesses.
That dynamic makes it harder for the Treasury to stimulate growth without fuelling further price rises.
The UK’s structural challenges, including a tight labour market, weaker productivity growth, and debts indexed to inflation, have also contributed to its fiscal problems.
But the government has also been criticised for measures such as the National Insurance hike and living wage increases that may be pushing inflation higher compared to other countries.
Impact on long-term finances
Persistent inflation can have a damaging effect on savings and investments over time.
Even modestly higher prices year after year can erode the purchasing power of cash and reduce the real value of savings interest. Those relying on fixed income or low-yield savings accounts are particularly exposed.
Anyone concerned about how ongoing inflation might impact their financial future may benefit from reviewing their portfolio. Taking a proactive approach can help ensure that long-term goals — such as retirement savings, property plans, or funding children’s education — are not undermined by inflation’s silent but corrosive impact.
