This means the cost of living is forecast to lift 20 basis points in the year to July, from 3.6% in June, driven by a mix of airfares, accommodation and food, when the Office of National Statistics posts its latest reading on Wednesday.

This is above the Bank of England’s 2% inflation target. 

“July inflation will likely see price momentum rise further into uncomfortable territory,” says Deutsche Bank senior economist Sanjay Raja. 

The German investment bank forecasts mortgage interest payments will rise by 30bps month-on-month, while energy and food prices will remain high for some months yet. 

This chimes with comments from the Bank of England’s governor after the Monetary Policy Committee cut the base rate by a quarter point to 4% last week, its lowest level since March 2023.

The reduction was the third rate cut this year and the fifth since last August, but the narrow 5-to-4 vote of the nine-member MPC saw dissenters voice concerns about rising inflation, which may delay further reductions. 

Andrew Bailey, who voted to cut, said: “We think inflation will increase to around 4% in September.”

But the governor added that he expected that slowing pay growth would feed through to slower price rises in the key services sector.   

Bailey pointed out: “Our job is to ensure that inflation falls back to the 2% target once these temporary factors have passed, as we expect to see.”    

Deutsche Bank predicts the cost of living will peak just below the Bank’s near-term forecast at 3.9%. 

And although the investment bank “expects price pressures to soften” in the final quarter of the year, it estimates inflation will end the year at 3.5%. 

This will mean that if the MPC continues its trend of quarterly rate cuts, the committee risks doing so against a backdrop of persistent inflation, which cheaper money may exacerbate.