The cost of living is forecast to stay at 3% when official data is released next week, driven by rises in food and drink, offsetting easing services inflation.  

Goldman Sachs analyst James Moberly predicts inflation will be “little changed” at 2.97% when the Office for National Statistics reports its reading on Wednesday, 12 basis points ahead of the Bank of England’s forecast. The central bank’s target is 2%. 

The US bank says services inflation will fall back to 4.90%, from 5.01% in January, but food, alcohol and tobacco prices will rise to 3.98%, from 3.71%, partly driven by an uplift in alcohol duty changes. 

When the central bank’s Monetary Policy Committee kept the base rate at 4.5% yesterday, it noted that since its February meeting, “global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements”.   

It reiterated that it expects global energy prices to push inflation to 3.7% in the third quarter of the year before falling back.   

But Deutsche Bank UK senior economist Sanjay Raja expects food and energy prices to remain “elevated” keeping the cost of living “at around 4% for much of the year”. 

However, the German bank still expects the Monetary Policy Committee to cut Bank rate “multiple times this year,” based on “a continued loosening of the labour market”. 

Though it says rising prices, could lead to a “pause in the easing cycle” until the committee gets “further clarity on 2026 pay settlements later in the year”. 

After the central bank’s rate hold yesterday, money markets pushed their expectations of a rate cut from 4.5% to 4.25%, to August from June.  

Markets expect two rate cuts this year, though some economists predict weak growth will force rate-setters into four reductions in 2025 to keep the economy moving.