NIESR urges UK rates toward 5% to prevent persistent inflation
Britain’s National Institute of Economic and Social Research says interest rates may need to reach 5% to control inflation. Its new outlook warns that rising prices before next year’s wage settlements could prolong inflation. After the Bank of England’s rise to 4%, the institute projects a February inflation peak near 4.4% and criticises delays in monetary and fiscal decisions.
Economics & Markets··Midday
A sharper response is urged before wage settlements
The National Institute of Economic and Social Research, a British economic research institute known as NIESR, argues that UK interest rates need to rise as high as 5% to contain inflation. Reports by Press Association and The Guardian describe its warning that delaying action could make price pressures more persistent. The Bank of England raised its rate to 4% the previous week. The institute says another quarter-point increase would be insufficient as employers and workers prepare next year’s pay settlements.[1], [2]
February inflation forecast rises
The institute projects consumer price inflation peaking near 4.4% in February, compared with the 3.8% peak in its July forecast. Under the policy path it expects, inflation would return to the 2% target only in late 2030. NIESR director David Aikman said prices rising before the 2027 pay round increased the risk of inflation becoming embedded. The institute warned that poorer households would suffer particularly from prolonged inflation because they have less scope to change spending or draw on savings.[1], [2]
Growth estimates improve for this year
NIESR raised its growth forecast for 2026 from 1.4% to 1.6%, citing government spending and business investment, including artificial intelligence investment. It lowered the 2027 forecast from 1.3% to 1.1%. The institute also criticised unfunded spending commitments in defence, social care and disability support. It estimated that slippage comparable to earlier spending plans could leave the government missing its fiscal rules by about 30 billion pounds sterling. These figures describe the institute’s forecasts and fiscal assessment.[1]
