UK inflation is expected to hit 4% in September, double the official target. The Bank of England may pause interest rate cuts due to concerns about stubborn inflation. Headline and core inflation are aligned for the first time in nearly two years. In July, the UK Consumer Prices Index is forecasted to rise by 3.6% year over year, the same as in June. Core inflation, excluding volatile food and energy prices, is also expected to increase by 3.6% in July.
Since late 2023, core CPI has been above headline CPI, but this month marks the first time in nearly two years that the two figures have aligned. During the inflation spike in 2022, core inflation lagged behind headline inflation, with core inflation hitting 6.5% when headline CPI peaked at 11.1% in October 2022.
The Bank of England recently cut interest rates to 4%, the third cut this year, to stimulate economic activity. However, the central bank now expects CPI to rise to 4% in September, double the official target. The Bank remains focused on combatting inflationary pressures to return inflation sustainably to its 2% target in the medium term.
The Bank of England’s 2% inflation target aims at maintaining price stability while supporting sustainable economic growth. Financial markets have repriced the likelihood of another rate cut at the upcoming meeting. The warning of an uptick in inflation has led to expectations that UK interest rates will remain unchanged in the next meeting.
The UK inflation data for July 2025 is set to be released on August 20, 2025. The Bank of England forecasts headline CPI to reach 4% in September 2025, double its 2% target. The remaining interest rate decisions for 2025 are scheduled for September 18, November 6, and December 18. The current UK interest rate is 4%, following the third cut of the year on August 7.

Read more at Morningstar: CPI Forecast and What It Means for Interest Rates