Inflation rises to 3.1%

Headline inflation moving back above 3% is not what borrowers wanted to see on the eve of the Bank of England’s decision.

Because much of the rise came from fuel while core inflation remained at 2.6%, I doubt the Bank will view this as a fresh inflation shock. It does, however, make a rate cut tomorrow harder to justify, with another hold looking more likely.

The figure may offer the pound some support if markets expect UK rates to remain higher for longer, although unchanged core inflation should limit the reaction.

For property finance, the practical consequence is continued pressure on affordability, development viability and refinancing exits. The economy may be growing, but many borrowers and property businesses will feel little benefit while financing and operating costs remain elevated.

Houston, we have a problem. With oil breaking $100 and with no resolution with Iran in sight, things are not looking good. At the moment it looks like it is not if we will have rate rises but when and how many.

I'll leave the pound to the currency desks, that isn't my world. On the economy and tomorrow's decision, the detail matters more than the headline. The rise to 3.1% was driven by transport and fuel, while core inflation held steady at 2.6%, which says the underlying trend hasn't really shifted. It's an economy that isn't re-accelerating, but isn't cooling quickly either. For tomorrow, that makes a hold close to certain and takes any lingering case for a cut off the table, because the Bank won't want to look like it's easing with inflation sitting above target. For the part I do speak to, mortgages, it confirms the higher-for-longer backdrop we've been living with. Lenders are already nudging fixed rates up, and borrowers are unlikely to see meaningful relief in the near term. The monthly cost of a mortgage stays stretched, which keeps the market subdued. Realistically, the next real signal comes at the Budget.

This is another unwelcome reminder that the inflation dragon has not been fully slain. For mortgage borrowers, the key issue is not simply whether the Bank of England changes Base Rate tomorrow, but what markets now think happens next. If inflation proves sticky, swap rates can remain elevated and lenders’ funding costs stay under pressure, which makes cheaper mortgages harder to deliver. We are already seeing lenders reprice upwards, so this will do little to calm things down. Borrowers should not panic, but anyone approaching the end of a fixed rate should start looking early, secure an option and keep reviewing it. In this market,preparation beats prediction.

Today's jump to 3.1% inflation lands the day before the Bank of England's rate decision, and it's bad timing for borrowers hoping for a cut. With core inflation stuck at 2.6% and services inflation still at 3.4%, the Bank has little cover to ease policy tomorrow. I'd be amazed if the MPC doesn't hold Bank Rate at 3.75%, and after July's 6-3 vote, with three members already pushing for a hike, a rise is now firmly on the table too.Borrowers waiting for rates to fall are about to find out that hope isn't a mortgage strategy.For anyone on a tracker, or with a fix ending in the next few months, the message is clear: lock in a competitive fixed deal now, rather than gambling on cuts that keep being pushed back.

August's CPI tick to 3.1% cements a Bank of England rate hold this month. With core inflation static at 2.6% and services sticky at 3.4%, policymakers cannot justify a cut just yet.
​All eyes now turn to October’s Budget. The Chancellor must strictly shackle government borrowing to settle gilt yields and swap rates, which dictate fixed mortgage pricing. Without fiscal restraint, volatile money markets will keep borrowing costs stubbornly elevated

For borrowers, the real story behind the 3.1% figure is a double squeeze: everyday costs are rising while the prospect of meaningful relief on mortgage payments is being pushed further away. A hold tomorrow now looks the most likely outcome, but that does not mean every fixed mortgage rate will automatically rise.

The worst response would be to panic or base a two or five-year decision on a single inflation reading. Borrowers whose deal ends within the next six months should secure a suitable option early and keep it under review. If pricing improves before completion, it may be possible to move to a better deal; if it worsens, they already have something secured. In an uncertain market, flexibility is far more valuable than trying to predict the exact day rates will turn.

I can’t see that anyone will be shocked at this figure due to the increasing cost of oil, fuel prices are on a rampage due to the Middle East crisis rumbling on. With mortgage fixed rates hiking higher and the expected energy price cap raising yet another 20% in January, it’s a perfect storm again being created with ordinary people picking up the tab from a squeezed household budget due to Labour’s continued punitive tax raids. Some mich needed giveaways will be welcomed in the Budget next month and the Bankbif England will be watching.

Growth's held up, but the labour market and wage growth are softening, and now we get a mixed bag of an inflation print. Today's rise is driven mainly by transport and motor fuels, and that kind of cost-push inflation squeezes household spending and business costs simultaneously. Core CPI held at 2.6%, services inflation at 3.4%, underlying domestic inflation is elevated, not accelerating.
The question for tomorrow's Bank Rate decision is simple: is the energy shock spreading into broader, persistent inflation, or not? A hold at 3.75% remains the central call. But a hawkish vote split or hawkish guidance would strengthen the pound and pull forward hike expectations. A dovish hold does the opposite.

August inflation came in at 3.1 per cent, up from 2.9, but the number worth reading sits underneath it. Core inflation, which strips out energy, food, alcohol and tobacco, was unchanged at 2.6 per cent. The ONS is clear that transport, mainly motor fuels, drove this.

A headline rise driven by fuel prices tells you little about the health of the UK economy, because fuel swings on global supply rather than domestic pressure. The flat core measure is the reassuring part as it suggests underlying price pressure is possibly not accelerating, which is what would genuinely concern the BoE.

The pound is unlikely to move much on this alone, because markets price what they expected long before the number landed. Sterling reacts to the gap between expectation and reality, not the number by itself. Today's data will matter less to the pound than tomorrow's rate decision and the language around it.

For tomorrow's BoE decision, this all but rules out a cut. Threadneedle Street isn't about to hand the front pages a headline that writes itself: 'rates cut the day after inflation rises.' It's spent two years trying to convince everyone it takes inflation seriously, and it isn't going to torch that credibility over one fuel-driven wobble, whatever core may be doing quietly underneath. My view is a BoE hold, with the door left ajar for a cut later in the year if core stays put and this turns out to be a fuel spike rather than the start of something nastier.

This inflation jump is a warning shot for the Bank of England. CPI is back up to 3.1% and, while core inflation remains calmer at 2.6%, rising fuel and energy costs risk spreading through the wider economy.

The Bank is now caught in a squeeze. Other central banks are tightening and, if Britain falls behind, sterling could weaken, making imported fuel, energy and goods even more expensive.

A rate rise tomorrow isn’t guaranteed, but the era of waiting for the next cut looks firmly on ice. Mortgage borrowers shouldn’t wait for the Bank either. Fixed rates are driven by market expectations and swap rates, so lenders can reprice upwards long before Bank Rate actually moves.

For homeowners, the message is simple: the mortgage market has turned, and anyone banking on significantly cheaper fixes in the near future could be disappointed.