Inflation in the United Kingdom has jumped as high as 11 percent over the past two years. International happenings and federal monetary policy have had a huge hand in these shifts. By October 2022, the inflation rate had surged to an unprecedented 11.1%. This dramatic increase was primarily driven by a surge in demand for oil and gas following the Covid-19 pandemic, exacerbated by geopolitical strife after Russia’s invasion of Ukraine. Yet as of March 2025, inflation had already returned to 2.6% and is part of a larger narrative of the economy’s return to normalcy.
In addressing the recent changes, the Bank of England governor, Andrew Bailey, indicated that a decision made in May was fundamentally linked to the decrease in inflation rates. This represented a significant change from 2021, when inflation hit record levels. ONS has a critical role to play here in tracking major shifts in our economy. It consistently monitors their prices for basic necessities goods and services including food and fuel.
The path inflation has taken over the past few years shows how turbulent and uncertain the economy can be. At the time in January 2016, the inflation rate was a paltry 0.3%. As demand forged ahead and the economy continued to change, inflation started its slow ascent, approaching the Fed’s target of 2% by late 2017. This issue persisted, with inflation reaching a high of 11.1% in October 2022 as international energy costs surged.
When inflation rates began to rise, the Bank of England made aggressive monetary policy shifts. At the same time, the federal interest rates increased to 5.25%, a 16-year high. This increase came against a backdrop of inflation rising far above the bank’s mandate of 2%. The European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 3.75% in June 2024, reflecting differing approaches to managing economic pressures.
By September 2024, the UK experienced a development of its inflation rate to reach 1.7%. This decline was consistent with similar patterns seen across the country. For example, countries that adopted the euro, commonly referred to as the Euro zone, reported an inflation rate of only 2.2% in April of 2025, even as inflation in the US dropped to 2.4% in March.
Further, the recent decline in the inflation rate has had beneficial impacts on real wages. Between December 2024 and February 2025, real wages increased by 1.4%. This important boost provided vital economic relief to families who have faced ever-increasing costs.
Even with all the positive indications, the economic road ahead is still fraught with uncertainty. The first quarter of the UK economy’s recovery from the exceptionally high inflation recorded through 2022. It is further brightened by a significant decline in inflation that gives cause for hope both to economists and to policymakers. Global events still raise risks that could push inflation in the opposite direction over coming months.
On this day, the Bank of England took a risk—drastically reducing its interest rate to 4.25%. This strategic move is part of a broader effort to increase economic growth and keep inflation under control.
