"Today’s data will reinforce the Bank of England’s cautious stance as the odds have shifted against further rate cuts in recent weeks, with the expected increase in inflation presenting a conundrum for the Bank. However, we expect a small majority on the MPC to look through the expected near-term rise in inflation, weighing it against softer signals from the labour market by the November meeting.
The UK has become an outlier in recent months on inflation compared to other major economies. Since April, the rise in inflation has been driven largely by domestic policy choices, including the increase in employers’ National Insurance Contributions. These higher costs have been passed on by businesses to consumers, feeding through into higher headline inflation.
Inflation remained unchanged at 3.8% in August. Encouragingly, services inflation eased, falling to 4.7%. We expect headline inflation to rise further this year, peaking at 4% in the Autumn. However, the longer-term outlook is more positive as inflation is projected to begin easing gradually in early 2026, potentially returning to target by the middle of next year.”
