Inflation Psychology: UK Public Losing Faith in a Quick Fix, Report Suggests

A new global report suggests a worrying psychological shift is underway in the United Kingdom, with households and firms “becoming maybe a bit less certain that inflation is coming down quickly.” This erosion of public faith is a key reason why the UK is now forecast to have the highest inflation rate in the G7.
The report, from a major financial institution, highlights this shift as a critical factor behind its projection of 3.4% UK inflation in 2026. When people expect high inflation to persist, they adjust their behavior—demanding higher wages and raising prices—in ways that make inflation a self-fulfilling prophecy. This makes the Bank of England’s job significantly more difficult.
This deep dive into inflation psychology comes as part of a broader, cautious assessment of the global economy. While the world’s 2025 growth has been revised up to 3.2%, the long-term outlook is described as “dim,” with multiple risks threatening stability. The UK’s inflation problem is presented as a prime example of these deep-seated challenges.
The report has prompted a direct recommendation for the Bank of England to be “very cautious” about any plans to cut interest rates. Easing policy in an environment where inflation expectations are becoming de-anchored would be a high-risk strategy.
This focus on the psychological dimension of economics serves as a reminder that taming inflation is not just a technical exercise. It requires maintaining public confidence, a battle that, according to this report, UK policymakers may be starting to lose.