UK inflation forces BoE between 'rock and a hard place'

UK inflation is proving stubbornly persistent, printing at nearly double the Bank of England’s 2% target, albeit today’s surprise to the downside will be roundly welcomed.

The MPC is stuck between a rock and a hard place. The cooling in Britain’s jobs market is screaming out for further reductions in the base rate, but high inflation warrants a need for caution. We think that most officials will probably need to see more evidence that inflation has indeed peaked, but today’s data does at least mark a step in the right direction.

We are not holding our breath for a November cut, which we see as essentially off the table. Markets now view a December cut as more likely than not, but we are still not entirely convinced just yet, and believe that elevated inflation could thwart any further easing until at least February.

Admittedly, the fallout from the budget may shake things up, as a tax-heavy, anti-growth budget would likely elicit a more dovish response from the MPC in 2026, which could spell trouble for sterling.