The cost of living is forecast to hit its highest level this year, coming in at 4% when official data is published next week.  

Deutsche Bank expects inflation to come in at this mark, driven by a range of items such as airfares, gardening and hardware goods, when the Office for National Statistics posts its figures on Wednesday. 

This would be double the Bank of England’s 2% price growth target, and will play into market doubts that the central bank’s Monetary Policy Committee will cut interest rates from its current 3.8% level again this year.  

The German bank’s chief UK economist Sanjay Raja said September’s inflation reading “will likely mark the peak in inflation this year, and likely for the cycle”. 

However, the International Monetary Fund said it expects UK inflation to remain above the Bank’s target for over a year, earlier this week. 

The thinktank predicted inflation to average 3.4% this year and 2.5% in 2026, “partly because of changes in regulated prices”.     

It added: “This is projected to be temporary, with a loosening labour market and moderating wage growth eventually helping inflation return to target at the end of 2026.”  

This is a more generous forecast than the MPC gave at its last meeting in XX, where it said that the cost of living will hit 4% this month, before falling back to its 2% target by mid-2027.       

Also, earlier this week, data showed wages easing and the jobless numbers inching higher. 

Average wage growth was 4.7% in the three months to August, down from 4.8% over the three months to July, according to official data. 

The national unemployment rate rose slightly from 4.7% to 4.8%. 

AJ Bell investment director Russ Mould said: “Central banks raise rates when they’re trying to combat high inflation, and they cut them when inflation looks like it is under control.

“An inflation figure starting with ‘3’ is arguably outside of the Bank of England’s comfort zone, so it might be forced to keep interest rates steady.  

“Normally that wouldn’t be such a problem if it wasn’t for a fragile jobs market. 

“Central banks look at both inflation and labour when making interest rate decisions, and a weak jobs market might traditionally call for rate cuts.  

“It suggests the Bank of England is stuck between a rock and a hard place.”