Oasis, wages all look to confound rate cuts
Britain’s fragile progress on inflation faltered in July, with consumer prices rising to 3.8 per cent, their highest level since early 2024, as the summer surge in travel and food costs complicated the Bank of England’s already cautious approach to interest rate policy.
The Office for National Statistics confirmed the headline figure, up from 3.6 per cent in June, leaving the UK with the fastest price growth among the G7 economies. Transport was the single largest driver of the increase, with air fares climbing at their steepest pace since comparable records began in 2001. Food and drink prices rose 4.9 per cent year on year, the sharpest gain since February 2024.
The persistence of price pressures has particular resonance for the mortgage market, where lenders and borrowers are increasingly wary of the Bank’s next steps. The Monetary Policy Committee (MPC) cut rates earlier this month to 4 per cent, but only after a finely balanced 5–4 vote. Policymakers have since warned against loosening credit conditions too rapidly.
“Today’s inflation data will reinforce the Monetary Policy Committee’s cautious approach to cutting interest rates going forward,” said Martin Sartorius, principal economist at the Confederation of British Industry. “While inflation is projected to ease next year, the risk of second-round effects means that the MPC will not race to loosen policy in the near term.”
For households and mortgage professionals, the detail matters as much as the headline number. Wage growth has slowed from last year’s peaks but remains close to 5 per cent, still well above the level consistent with a 2 per cent inflation target. Employers have cited April’s higher national insurance contributions and a sharp rise in the minimum wage as reasons for passing costs on. The Bank itself forecasts inflation will touch 4 per cent in September and remain above target until mid-2027.
The broader picture suggests that rate reductions will be limited. Economists polled by Reuters this week expect only one further cut before year-end, most likely in November, followed by another in early 2026. “Right now the Bank of England is really on a knife-edge in terms of whether it wants to cut interest rates further,” said Chris Hare, senior economist at HSBC.
For lenders, the message is clear: funding costs are unlikely to fall swiftly, while borrowers may face prolonged uncertainty over affordability tests. Swap rates have edged higher since the inflation release, signalling that fixed-rate mortgage pricing could remain elevated despite the recent easing in Bank Rate.
Rachel Reeves, the chancellor, acknowledged the political and economic pressures. “We have taken the decisions needed to stabilise the public finances, and we’re a long way from the double-digit inflation we saw under the previous government, but there’s more to do to ease the cost of living,” she said.
For now, the “Gallagher effect” of the Oasis reunion tour or the timing of school holidays may dominate the headlines. But for mortgage advisers and lenders, the key story is that inflation remains sticky, delaying the relief that lower borrowing costs were expected to bring. The risk is that homeowners refinancing in the months ahead will face rates that stay stubbornly above expectations, prolonging the affordability squeeze into 2026.
