Policymakers at the Bank of England said they expect Chancellor Rachel Reeves’ Budget to knock as much as 0.5 percentage points off inflation by next spring.
Clare Lombardelli, deputy governor of the central bank, pointed towards the continued easing of inflation during a session with Parliament’s treasury committee.
She said early analysis by the Bank indicated that measures aimed at household bills will help reduce the official inflation rate by between 0.4 and 0.5 percentage point from the second quarter of 2026.
Last month, the Chancellor revealed plans to reduce household energy bills from April by funding part of the renewables obligation scheme, taking this cost away from consumer bills.
Office for Budget Responsibility (OBR) forecasts also indicated that that budget policies will reduce inflation by 0.4 percentage points next year, with the freeze in rail fares also contributing.
However, the forecasts also indicated that budget policies will contribute a 0.1 percentage point uplift to inflation in the following two years, due to the end of the fuel duty freeze and the new charge for electric vehicles.
Ms Lombardelli told MPs that all Bank rate-setters expect that inflation will continue to fall after peaking at 3.8% between July and September, as it seeks to bring this down to its 2% target rate.
She added that the “slightly looser fiscal policy”, which will see more Government spending, is likely to “push up” GDP in the short term, but stressed that the effect would be small.
On Tuesday, fellow deputy governor Dave Ramsden said he is taking a “gradual and careful approach” to reducing interest rates, after voting in favour of another cut at the most recent Bank meeting last month.
The Bank’s monetary policy committee (MPC) will meet again next week to decide whether to reduce interest rates from their current level of 4% ahead of Christmas.