The IFS Green Budget 2026

Key arguments

• The Middle East conflict has replaced a hoped-for soft landing with a renewed cost-of-living shock, with Brent crude rising from about $60 to around $100 a barrel and UK wholesale gas prices more than doubling from roughly 70p to around 185p per therm.
• Inflation is set to remain above target through 2027 but is not expected to become entrenched in the baseline, as broader price pressures, wage responses and longer-term inflation expectations remain relatively contained.
• The Bank of England is expected to make two quarter-point increases to 4.25% by February, a more muted cycle than the roughly 4.75% implied by markets, before rates settle at 3.25% medium term.
• Growth is likely to slow as higher prices and interest rates bite, with real GDP around 0.8% lower by end-2027 than without the conflict, while an AI investment boom could lift real GDP 2.5% above baseline by end-2031.

Corresponding source evidence

1. Brad Rogoff Global Head of Research, Barclays ©The Institute for Fiscal Studies, October 2025 The IFS Green Budget: October 2026 5 Foreword from the Nuffield Foundation The Nuffield Foundation is an independent charitable trust that funds and undertakes rigorous research, encourages innovation and supports the use of sound evidence to inform social and economic policy and improve people’s lives. · October 2025
2. The impact on the government’s finances will depend on exactly how inflation feeds through to different parts of the economy.
3. But higher inflation will also increase tax receipts, especially if it is reflected in higher wages.