According to the Bank of England inflation is set to hit 4% in September and they confirmed the consumer price index (CPI) will soar higher than expected, this is double the central banks target of 2%.
The Monetary Policy Committee (MPC) members said the hike in inflation will be “temporary.”
The central bank said, “CPI inflation is forecast to increase slightly further to peak at four per cent in September.
Inflation is expected to fall back thereafter towards the two per cent target, although the Committee remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process.
Overall, the MPC judges that the upside risks around medium-term inflationary pressures have moved slightly higher since May.
Scottish Friendly savings expert Kevin Brown said: “The Monetary Policy Committee didn’t disappoint, cutting rates to four per cent as expected.
The move came in spite of inflation hitting 3.6 per cent in June, significantly ahead of the Committee’s target of two per cent.
“The cut suggests policymakers believe that a slowing labour market and lacklustre economic growth will combine to bring inflation under control over the next few months.
The Committee has previously said it would be willing to cut rates if the job market showed signs of weakening. Employment data earlier in July showed signs of rising unemployment and slowing wage growth.
There remain concerns over the persistency of price rises, particularly in areas such as food, energy and labour costs. Nevertheless, prices are expected to drop in the latter half of 2025 and into 2026.
The interest rate cut had been widely anticipated and is therefore likely to be reflected in Government bond markets already.”
