NIESR sees UK inflation above BoE target for four years, peaking at 4.4% in 2027

The National Institute of Economic and Social Research (NIESR) forecasts that UK inflation will remain above the Bank of England's 2% target for four consecutive years, peaking at 4.4% in 2027. The projection implies a prolonged gap between realized inflation and the central bank's mandate, which would constrain the scope for near-term rate cuts and keep the policy rate elevated for longer than markets may be pricing. The transmission runs through the inflation-repricing channel: sustained above-target CPI lifts expected policy rates and gilt yields, supporting sterling through rate differentials while weighing on rate-sensitive domestic assets such as UK housing-linked equities and long-dated gilts. Short-sterling and SONIA-linked rate futures are the most directly exposed instruments, as are inflation-linked gilts, where breakevens would be expected to widen on a higher inflation path. Traders should watch the next UK CPI release from the ONS and the BoE's upcoming Monetary Policy Report for any revision to the inflation trajectory and guidance on the pace of rate normalization.

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