UK inflation could rise to 3.5%...

Thank you for following our live analysis this afternoon. We will be back tomorrow morning before the inflation figures are published at 7am. Join us then.

Are consumers feeling stretched by rising prices?

UK households have been holding up fairly well, and many have a comfortable savings buffer. The UK household saving ratio was 10.9% in the first quarter of 2025, according to the latest ONS figures. Although inflation is above target, prices are rising far more slowly than at the peak of the cost-of-living crisis. For context, inflation hit 11.1% in October 2022.

That said, there have been a string of nasty bill hikes in recent months. ‘Awful April’ saw energy costs rise by 6.4% annually, water bills by an average 26%, and council tax bills by around 5% in most local authorities.

Energy costs have since fallen back with the new Ofgem price cap kicking in from July, but gas and electricity bills are still significantly higher than before the energy crisis.

Going forward, new pressures could emerge too. Real wages have generally been rising since mid-2022, but this could be set to change now that the economy is slowing. Businesses could look for ways to cut their wage bill to help offset the effect of higher National Insurance contributions. Some have warned that this will mean reducing employees’ hours or offering smaller annual pay rises.

Commenting after last month’s labour market report, which showed a slowdown in the rate of wage growth, Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “In this environment it’s key to take stock as soon as possible. You can’t rely on wage rises in the coming months, so you need to build a robust budget right now rather than hanging on for payday.

“It’s also worth considering what would happen if you were unable to work for a period. It’s why advisers will recommend having an emergency savings safety net big enough to cover 3-6 months’ worth of essential spending.”

See our article: “How much should I have in emergency savings?”

What does higher inflation mean for your savings?

Savers are now getting squeezed on both sides. Inflation is high and rising, but interest rates are coming down.

Remember, even if inflation doesn’t creep up tomorrow, the Bank of England expects it to hit 3.7% by September. At the same time, most economists are forecasting two more interest rate cuts before the end of the year.

If the interest rate on your savings account is lower than the rate of inflation, you are losing money in real terms. Shop around for a better rate. If you are happy to lock up your cash for a year or so, it could make sense to fix your savings to lock in higher rates for longer.

Best rates on the market

The good news is that lots of accounts on the market still offer an inflation-beating rate. Using a comparison tool like Moneyfacts can help you find the best deals:

• Best easy-access savings rate: 5% (Cahoot and Chase)
• Best easy-access cash ISA rate: 4.98% (Trading 212)
• Best one-year fixed savings rate: 4.52% (Tandem Bank)
• Best one-year fixed cash ISA rate: 4.16% (Virgin Money)

^{Source: Moneyfacts as of 15 July 2025. Rates based on accounts with no minimum deposit requirements.}

Make sure to read the small print to understand whether the interest rate only applies up to a certain balance. Some accounts also include temporary bonus rates. Always remember that the interest on a variable-rate account can drop at any time. It is also important to pay close attention to any withdrawal restrictions.

Inflation vs growth concerns: a tough tightrope for the BoE

It feels strange to be discussing interest rate cuts when inflation is high and rising. The Bank of England expects CPI to hit 3.7% by September. But the MPC has a tough tightrope to walk. As well as keeping inflation under control, it needs to support economic growth.

Growth fears are now ramping up after signs of weakening in the labour market – discussed in our previous post. The economy also shrank for the second month in a row in May, according to GDP figures published on Friday.

“The upcoming base rate decision will be more than a number and it will provide critical insight into how the Bank of England views the balance between taming inflation and supporting a slowing economy,” said Adam French, consumer expert at financial information company Moneyfacts.

“Beyond the immediate market reaction, it will shape mortgage rates, guide fiscal confidence and underpin the central bank’s institutional credibility.”

Will the Bank of England cut interest rates in August?

Even if inflation creeps up slightly to 3.5% in tomorrow’s report, an interest rate cut seems to be on the cards when the Bank of England next meets on 7 August.

The latest ONS report showed a marked slowdown in the jobs market which, if sustained, could strengthen the case for faster rate cuts. The unemployment rate increased to 4.6% annually between February and April, the highest level in almost four years. The number of job vacancies dropped by 63,000 over the quarter.

ONS survey data suggests some firms are not recruiting new workers or replacing those who have left as business confidence weakens. Wage growth also slowed to 5.2% annually over the same period, down from 5.6% in the previous report.

This could be linked to the fact that employers’ National Insurance contributions and the National Living Wage went up in April, making it more expensive for businesses to employ people. There are also fears that Donald Trump’s tariffs could dampen growth and push costs up for businesses and consumers.

When was index day?

The exact CPI reading this month could depend on when the ONS collected its index data. Pantheon Macroeconomics has assumed it took place on 17 June, while Deutsche Bank has opted for 10 June. The timing of index day will impact the accuracy of their forecasts.

If the ONS went for earlier in the month, the headline CPI figure could be slightly lower than the 3.5% Pantheon has forecast. This is because airfares, hotel prices and clothes prices all appear to have risen later on in the month.

The warmer weather is partly to thank. It seems to have pushed hotel and clothes prices up in late June, as demand for travel and summer wardrobe items increased.

Rising food prices could push inflation higher

Research provider Pantheon Macroeconomics expects CPI to creep up to 3.5% in June, partly driven by food prices. This would represent a 0.1 percentage point increase compared to May, when inflation was 3.4%. Extreme weather has impacted harvest yields, and higher employment costs are also pushing prices up.

Although Deutsche Bank expects the headline rate of inflation to hold steady at 3.4% in June, it also acknowledges the “continued pressure building in food prices”, describing retail and wholesale prices as “uncomfortably strong”.

Kantar grocery price inflation hit 4.7% in June, the highest annual rate since February 2024.

Hello and welcome. Will inflation rise tomorrow?

Good afternoon, and welcome to MoneyWeek’s live report on inflation. June’s CPI report will be published at 7 am tomorrow. Some economists expect inflation to hold steady at 3.4%, in line with the Bank of England’s forecast, while others expect it to creep up to 3.5%.

Stick with us as we bring you the latest preview analysis and live reporting. We will be looking at what’s driving UK prices, what it means for the Bank of England’s upcoming interest rate decisions, and how it impacts your personal finances.