UK inflation on 'worrisome trajectory' – No rate cuts due for rest of 2025

UK inflation continued on its worrisome upward trajectory in July, jumping to just shy of double the Bank of England’s 2% target and its highest level since January 2024. If that wasn’t bad enough, things are set to get worse before they get better, with inflation seen peaking at the wrong side of 4% next month before moderating towards year-end.

This cost-of-living spike will exert an additional squeeze on households through lower disposable incomes and an erosion in purchasing power.

This comes at a particularly delicate time for Britain's economy, which is grappling with the impact of higher business tax rates, rising gilt yields and a near-collapse in the jobs market, which is at its lowest ebb since the pandemic.  

Today’s data will also pile further pressure on the Bank of England to keep rates unchanged for some time. We now see no cuts at all during the rest of 2025, with swap markets currently not pricing in the next 25 basis point rate reduction until as far out as March 2026.

While this will provide little relief for borrowers it should, we believe, keep the pound well supported during the remainder of the year.”