Joe Nellis, economic adviser at MHA
UK inflation rose to 3.8% in July, up from 3.6% the previous month, dampening hopes of further interest rate cuts this year.
The figure remains almost double the Bank of England’s 2% target, driven largely by domestic cost pressures including wage growth in hospitality, healthcare and transport. Core inflation, which excludes volatile food and energy prices, continues to sit stubbornly high.
Joe Nellis, economic adviser at MHA, warned that the outlook makes it unlikely the Monetary Policy Committee will cut rates when it meets in September. “Inflation will need to show some sign of improving if we are to see any cut at all before the new year,” he said.
While wage growth is beginning to slow, economists expect it will take several months before this shows up in the inflation data. The persistence of high inflation is continuing to squeeze households through rising rents, mortgage costs and higher prices for services.
For the Chancellor, the figures present an added challenge ahead of the Autumn Budget. Higher inflation pushes up government borrowing costs and threatens fiscal headroom, making it harder to balance economic stability with growth.
Although GDP growth in the second quarter was stronger than expected, the prospect of further rate cuts to support the economy appears increasingly remote. “Without rising inflation, the Chancellor’s dual task of maintaining fiscal stability and generating growth was already difficult — it is now looking more like impossible,” said Professor Nellis.
