UK Treasury projects inflation at 3.2% for Q4 2025, clouding risk asset outlook

The UK Treasury and the Office for Budget Responsibility are not known for delivering good news at convenient times. Their latest projection is no exception: CPI inflation is expected to hit 3.2% for the fourth quarter of 2025, part of a broader upward revision that has the annual inflation rate climbing from 2.5% in 2024 to 3.2% across 2025.

What the numbers actually say

Inflation is projected to hit 3.1% in Q2 2025, accelerate to 3.3% in Q3, and remain elevated through Q4. The peak, according to the forecast, lands in July 2025 at 3.8%, driven by energy prices, food costs, and increases in regulated prices across essential goods categories.

December 2025 recorded an actual year-on-year CPI reading of 3.4%, up from 3.2% in November, which suggests the trajectory is tracking above the OBR’s baseline projections rather than below them.

The Bank of England has been navigating a delicate balancing act between cutting rates to stimulate a sluggish economy and keeping monetary policy tight enough to prevent inflation from re-entrenching. A forecast that keeps inflation above 3% through the back half of the year makes that balancing act considerably harder.

Why crypto investors should care about UK CPI

When government bond yields rise in response to sticky inflation, the math on every other asset class shifts. During periods when real yields are rising, risk assets tend to underperform. A UK inflation print that keeps the Bank of England from cutting rates as aggressively as markets hoped is, by extension, a headwind for crypto sentiment.

The macro setup for the second half of 2025

Look at the quarterly progression the OBR is projecting and a picture emerges: inflation rising through mid-year, peaking in July, then staying elevated through Q4 rather than dropping cleanly back toward the 2% target.

What crypto investors should watch in the months ahead is the Bank of England’s rate decision cadence relative to actual CPI prints. If inflation tracks at or above the OBR’s projections through Q3, rate cut expectations will be pushed further out. The July peak projection is the first major test of whether the OBR’s model is tracking reality.

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