A finances expert at the Best Invest consultancy is warning that the recent rise in headline inflation from 2.0% to 2.2% may be enough to stop the Bank of England make a second base rate cut next month.

Consumer price inflation hit 2.2% in July, back above the Bank of England’s 2.0% inflation target, but so-called core inflation fell to 3.3% from 3.5%, while services inflation eased much more than expected to 5.2% from 5.7%.

Best Invest’s Alice Heine says: “What will be disappointing … is the prospect that the next rate reduction may get delayed until later in the year. The stronger inflation reading now sits above the Bank of England’s inflation target of 2% causing complications for the central bank as it shifts towards a lower interest rate environment. The BoE made its first rate cut at the start of this month, with many hoping for a follow-up in September.   
 
“While a rise in inflation in the final few months of 2024 was expected, as easing gas and electricity bills fell by less than they did last year, a sizeable uplift later in the year could derail plans for further interest rate cuts, prolonging the financial struggle for those grappling with heavy mortgage or debt repayments.”

Meanwhile Jatin Ondhia, chief executive of property investment platform Shojin, adds: “The Bank’s interest rates hikes may have steadily brought inflation under control, but there are numerous factors that could drive it back up, and while today’s figure is no reason for panic, it shows how persistent inflationary pressures are likely to be over the coming months. Investors must evaluate accordingly and consider how well-positioned their portfolios are to generate returns in the face of stickier-than-anticipated inflation.

“Diversification and agility will prove key in navigating this testing climate. It should be expected that resilient markets – such as real estate – will continue to attract investor demand, while alternative investments will offer investors the chance to diversify their portfolios if that is indeed their strategy of choice.”

And mortgage experts speaking to the Newspage agency echo the concerns.

Ranald Mitchell, director at Charwin Mortgages, comments: While an interest rate cut in September may be less likely, lender competition with mortgage rates should support borrower demand and maintain resilience in the property market.”

Ben Perks, managing director at Orchard Financial Advisers, states: “A base rate reduction in September was always unlikely, but now seems totally out the window. It is unnerving to see inflation on the rise again, but an uptick to 2.2% is better than anticipated. No need for panic stations yet. This data should have very little impact on swap rates and the interest rates available to borrowers should continue to trickle downwards. Core inflation could ride to the rescue.”

And Riz Malik, director at R3 Mortgages, sees it this way: “While no one expected inflation to stay at 2%, the current data doesn’t point to a rate cut at the September meeting. With no meeting in October, November could still present an opportunity for the second base rate cut of the year.”