HM Treasury and the Bank of England exchanged formal letters on 30 April 2026 after UK CPI inflation reached 3.3% in March, exceeding the 2% target threshold and triggering a mandatory response under the Monetary Policy Committee framework.
The correspondence follows the publication of March inflation data by the Office for National Statistics, which showed a rise from 3.0% in February to 3.3%. This level requires the Governor to explain the deviation and outline corrective measures.
It also sets out the expected path of inflation through 2026, including projections influenced by rising global energy costs linked to ongoing conflict in the Middle East. It provides an overview of both monetary policy positioning and government fiscal actions aimed at stabilising prices.
Inflation exceeds target and triggers formal response
CPI inflation rising to 3.3% in March exceeded the Bank of England’s 2% target by more than one percentage point, activating the formal letter exchange mechanism. This process requires the Governor to explain the deviation and the Chancellor to respond with the government’s position on inflation control.
Energy costs drive recent inflation increase
Higher global energy prices have been identified as the primary factor behind the increase in inflation, particularly through rising fuel costs. Disruption to supply routes and increased oil and gas prices have contributed directly and indirectly to broader price pressures across the economy.
- Fuel prices: Petrol and diesel costs increased due to higher crude oil prices following geopolitical disruption
- Supply chains: Rising energy costs have affected production and transport expenses across multiple sectors
- Food prices: Increased fertiliser and energy input costs are contributing to higher agricultural prices
Outlook for inflation through 2026
Bank projections indicate that inflation may ease slightly to around 3.1% in the second quarter before rising again to approximately 3.3% later in the year. Further increases are expected as energy costs continue to influence both direct and indirect price components.
Monetary policy stance and Bank response
The Monetary Policy Committee has maintained Bank Rate at 3.75% while continuing to monitor developments in global energy markets. The Bank has stated it will act as necessary to ensure inflation returns sustainably to the 2% target over the medium term.
- Interest rates: Bank Rate held at 3.75% to balance inflation control with economic growth
- Policy approach: Focus on medium-term stability while assessing persistence of energy-driven inflation
- Monitoring: Ongoing assessment of second-round effects on wages and prices
Government measures to manage price pressures
The government outlined fiscal actions designed to reduce inflationary pressure and support households. These include measures to lower borrowing, support energy affordability, and strengthen long-term energy resilience.
Inflation Indicators
| Indicator | Recent Movement | Context |
|---|---|---|
| CPI Inflation | 3.3% (March 2026) | Exceeded target due to energy cost increases |
| Petrol Prices | 130p → 157p per litre | Reflects higher crude oil prices linked to Middle East conflict |
| Diesel Prices | 141p → 190p per litre | Sharp rise driven by supply constraints and increased demand |
Inflation Outlook Projections
| Indicator | Recent Movement | Context |
|---|---|---|
| Q2 2026 CPI | ~3.1% | Temporary easing before further energy-driven increases |
| Q3 2026 CPI | ~3.3% | Projected rise due to continued energy cost pressures |
| Energy Price Cap | Expected increase | Delayed impact of wholesale gas price rises on household bills |
Stakeholder Comments
Rachel Reeves, Chancellor of the Exchequer said;
“The most important thing that the government can do to keep inflation low is to stick to our fiscal rules and get borrowing down.”
Andrew Bailey, Governor of the Bank of England said;
“Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term.”
The exchange between HM Treasury and the Bank of England highlights the current inflation pressures facing the UK, driven primarily by rising global energy costs. While inflation is expected to fluctuate through 2026, both institutions have set out coordinated monetary and fiscal approaches to return inflation to target. Ongoing monitoring of energy markets and economic conditions will remain central to policy decisions in the months ahead.
Sources: HM Treasury and Bank of England; Office for National Statistics.
Prepared by Ivan Alexander Golden, Founder of THX News, an independent news organisation delivering timely insights from global official sources. Combines AI-analysed research with human-edited accuracy and context.
