What to expect for UK interest rates for the rest of 2026
Key Points
- UK inflation rose to 2.9% in July, above the 2.8% the Bank of England had expected.
- The rise was the first increase in the annual rate since March 2026.
- Core inflation held at 2.6% while services inflation eased to 3.4%.
- Quilter Cheviot expects one rate rise this year, taking rates to 4%.
- The Resolution Foundation expects inflation to peak at around 3.2% by the end of the year.
Inflation rose to 2.9% in the 12 months to July, above the 2.8% the Bank of England had expected, leaving borrowers waiting longer for cheaper mortgage rates.
The increase ended four months of falling or steady headline inflation, and marked the first rise in the annual rate since March.
Higher energy costs drove it, with the July price cap adding around 0.4 percentage points to the headline figure according to the Resolution Foundation. Core inflation, which strips out energy, food, alcohol and tobacco, held at 2.6%.
Services inflation eased to 3.4% from 3.6%, a measure rate setters watch closely as a gauge of domestically generated price pressure. Goods inflation moved the other way, rising to 2.2% from 1.7%, on the back of gas and electricity prices.
Wealth manager Quilter Cheviot expects the Bank to hold at its next meeting. “A renewed spike in inflation has been expected as the war in the Middle East continues to navigate a clunky ceasefire,” said Jonathan Raymond, investment manager at Quilter Cheviot.
The firm expects one rate rise this year, which would take rates to 4%, and points to a further inflation release before the Bank’s next decision.
The Resolution Foundation expects inflation to peak at around 3.2% towards the end of the year, well below the levels seen during the cost of living crisis.
“At today’s energy prices the Government should not be looking to provide large-scale blanket support, but it should be ready with targeted support if bills climb further this autumn,” said James Smith, chief economist at the Resolution Foundation.
ONS publishes the August inflation figures on 16 September.
