With the latest UK inflation data to be released next week, expectations are that it will show an increase for August which is likely to be repeated in September.
Hargreaves Lansdown believes inflation will rise from 3.8% in July to hit a peak of 4% in September and that this sticky inflation will make any cuts to Bank base rates unlikely before Christmas.
In August the Bank of England rate-setters cut the rate to 4% from 4.25%.
Commenting on the current economic climate Hargreaves Lansdown head of money and markets Susannah Streeter said: “Just like the weather, the temperature for inflation looks set to have been steamy in August. With food and grocery prices still on the boil there’s not likely to have been much cooling off.”
She added: Retail sales figures show there was a more upbeat pattern of spending later in the summer, particularly for non-essential items. The broader rise we’ve seen in services inflation, in particular, is an ongoing concern for Bank of England policymakers. Some will worry that the persistent increase in everyday prices will propel more higher wage demands and make inflation harder to cool.”
Streeter said that inflation would likely to peak at 4% in September, before starting a downwards drift.
“Even though we’re expecting bad news from the employment market, with every chance of more weakness everywhere from unemployment to vacancies, the Bank isn’t keen to cut at a time when inflation remains so stubborn. So, borrowers look set to need lots more patience, given another interest rate cut is not likely this month or even by the end of the year.”
Hargreaves Lansdown head of personal finance Sarah Coles highlighted what the current climate might mean for mortgage holders.
“The fact that more cuts aren’t expected for a while yet means we could see mortgage rates stabilise, so if you have a remortgage round the corner, it could be a good time to seek out a deal. “
She added: “Remortgages have been horribly painful, ever since rates started rising in 2022. In fact, the new HL Savings and Resilience Barometer shows that those who have remortgaged pay £88 more a month than those who haven’t, and have almost three times as much of their borrowing on variable rates. The fact that the process could be less painful in the coming months could be a huge relief for anyone facing the prospect right now.”
