UK Inflation & Interest Rates: What It Means for Your Financial Future

sjohnston90
Jul 18
3 min read

Updated: Sep 12

Inflation Back in the Spotlight

After months of steady declines, UK inflation unexpectedly rose to 3.6% in June, up from 3.4% in May. This surprise jump has triggered concern across financial markets and raised a key question: what’s next for UK inflation interest rates?

What Caused the Spike in Inflation?

Higher food prices
Rising fuel costs
Transport fares
Services inflation (still high at 4.7%)

Why Inflation Matters for Interest Rates

The 2% target guides how UK inflation interest rates are set. When inflation rises faster than expected, the Bank of England is forced to adjust its rate strategy.

So, Will Interest Rates Still Fall This Year?

Let’s get to the point. Most analysts and economists still expect the Bank of England to cut rates this year — but it might not happen as quickly as hoped.

Before this inflation spike, a 0.25% cut was expected at the 7 August Monetary Policy Committee (MPC) meeting, with a possible second cut in November. Now? That August cut is still on the table, but there’s less certainty. According to the Financial Times, market expectations of a summer rate cut fell slightly after the June data was released. That doesn’t mean it’s off the cards — just that the Bank will proceed with more caution.

Why? Because inflation isn’t the only factor in play. The Bank of England also has to consider the broader economy. And here’s where things get interesting.

Market Expectations in 2025

August: a 0.25% cut was expected, but now less certain.
November: possible second cut, dependent on inflation trends.

The Economy Is Showing Signs of Weakness

Despite inflation rising, the UK economy isn’t exactly booming. In fact, we’re starting to see signs of a slowdown:

Unemployment rose to 4.7%, its highest level in more than two years.
Wage growth is still high but has begun to slow.
Business investment is cautious, with many firms waiting to see what happens before committing to major plans.

In short: inflation is up, but confidence is down. This makes the Bank of England’s job harder. Do they cut rates to support the economy, or hold them to bring inflation under control?

At the moment, the most likely path is a small cut in August, followed by another in late autumn if inflation starts falling again.

What Does This Mean for Business Owners?

This news affects more than just economists and politicians. It hits the heart of how your business operates.

If you’re running a business that relies on borrowing maybe you’re planning to expand, take on new premises, or invest in equipment, interest rates are a big deal. Every percentage point matters.

Higher rates mean:

More expensive business loans
Higher monthly repayments
Tougher affordability criteria from lenders

If you were hoping for rates to fall fast, this inflation bump might mean you have to wait a bit longer. That doesn’t mean you should put off plans — but it does mean you should speak to a broker or adviser who can help you navigate the best options now.

What About Property Buyers and Landlords?

Mortgage rates, especially fixed deals, are heavily influenced by inflation and interest rate forecasts. The current uncertainty means mortgage lenders may price more cautiously over the coming weeks. We’ve already seen some lenders withdraw products or adjust pricing.

For property buyers, this means now is a good time to review your strategy:

If you're looking to buy soon, consider locking in a fixed rate.
If you're remortgaging, check if your current deal still makes sense.
If you're investing in buy-to-let, be aware of how rate changes impact your rental yield and cash flow.

Landlords in particular should keep an eye on their mortgage costs especially if you’re coming off a low fixed rate soon.

Action Steps for Buyers and Investors

Lock in fixed deals if buying
Review remortgage options
Track BTL yield impacts

So, What Should You Do?

The key message is this: don’t wait for certainty.

Markets are always changing, and while we might still see a rate cut this summer, it’s no longer guaranteed. Inflation is proving to be sticky, and the Bank of England is being cautious.

If you’re considering borrowing, refinancing, or making a big financial decision in the next 6 months, the best approach is to get advice now. Understand your options. Get a plan in place. And be ready to move when the moment is right.