Will UK inflation rise tomorrow ahead of BoE meeting?

Food has been one of the categories driving inflation higher, and it is an area the Bank of England seems to be concerned about. Food prices are very visible to consumers – it is easy to see when your weekly or monthly supermarket bill is going up.

One thing the Bank is worried about is that this will translate into higher household inflation expectations, which could prompt people to bargain for bigger wage increases. It is a vicious circle, because pay rises themselves are a big driver of future inflation. The Bank needs wage growth to come down before it can cut interest rates much further.

In July’s report, the cost of food and non-alcoholic beverages rose by 4.9% – the fourth consecutive increase in the annual rate and the highest recorded since February 2024.

“The Food and Drink Federation is forecasting food inflation could reach 5.7% by the end of December and still be running at 3.1% by the end of 2026,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“Higher employer and packaging taxes are being blamed for increasing costs for companies, which they can no longer absorb.”

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As we have introduced in our previous posts, inflation is expected to peak at 4% in September’s report (published in October) before gradually falling back after that. It could be some time before it returns to the 2% target, though.

Bank of England policymakers believe inflation will average 3.1% in the first quarter of 2026, 3% in the second, 2.7% in the third and 2.5% in the fourth.

They expect it to return to the 2% target in the second quarter of 2027.

More than four in five people (83%) expect inflation to hit their personal finances in the next five years, according to research from Yorkshire Building Society. One of the most damaging effects of inflation is the way it can erode your savings.

Even if inflation were to sit at around 2% (the Bank of England’s target), it would only take 36 years for the value of your savings to halve.

Over the past few years, the rate of inflation has been far higher than this; UK inflation peaked at 11.1% in October 2022. At this elevated level, it would only take around six and a half years for the value of your money to halve.

While investing can be a good way to beat inflation over the long run, we all need to hold a decent amount of cash for day-to-day spending, short-term savings goals and emergencies.

One of the best ways to protect the value of your cash is to find a savings account that offers real returns. Although this is becoming more difficult (as interest rates have come down while inflation has gone up), there are still inflation-busting rates on the market.

Analysis from Moneyfacts, conducted last month, showed 956 accounts were still offering inflation-beating rates in August.

Hotel prices jumped in July, partly off the back of the Oasis reunion tour. This could add pressure in August too, with the concerts continuing into the month. Pantheon Macroeconomics thinks this, combined with other factors like higher food price inflation, will push the headline figure up to 3.9%.

“A jump in food price inflation, a fall in motor fuels last August dropping out of the annual inflation comparison, and hotel prices inflated by an Oasis concert on CPI collection day should more than offset slowing airfare inflation,” said Pantheon’s chief UK economist Robert Wood.

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The next Monetary Policy Committee (MPC) meeting will take place on 18 September, just one day after August’s inflation report is published. The Bank of England is expected to hold rates at 4%. Economists polled by Bloomberg and Reuters were unanimous in ruling out a September rate cut.

Speaking to MPs earlier this month, the Bank of England’s governor Andrew Bailey said inflation risks had “gone up”. While rates are still on a downward path, he added that there is now “considerably more doubt about exactly when and how quickly we can take those further steps”.

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Advisory firm Oxford Economics is one of the forecasters that thinks inflation will inch up to 3.9% tomorrow. By comparison, the Bank of England’s forecasts point to a 3.8% reading, which is also what Deutsche Bank, the investment bank, is expecting.

A 3.9% forecast “reflects our view that further upward pressure from food prices and a smaller drag from the petrol category should more than offset the impact of a modest fall in services inflation due to July’s temporary spike in air fares unwinding,” said Edward Allenby, economist at Oxford Economics.

Good afternoon and welcome to our inflation live coverage.

The Office for National Statistics will publish August’s inflation report tomorrow morning at 7am, and it is unlikely to make pretty reading. Forecasters think inflation will either hold steady at 3.8% or creep up slightly to 3.9%, before peaking at 4% next month when September’s figures are released.

July’s reading of 3.8%, published last month, was the highest in 18 months. Higher food prices have been a big driver of increases in recent months.

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