The UK may raise interest rates by another 0.5% next month! Truss says Britons are too lazy and should learn more from the Chinese...

Key highlights from the UK daily update on 17 August: ・The Bank of England may raise interest rates by 0.5% in September; the latest inflation rate hit a 40-year high. ・UK wage levels are falling at the fastest pace on record due to inflation. ・Liz Truss: "Britons are too lazy—they should learn more from the Chinese." ・The Royal Air Force has temporarily suspended recruitment of white men to meet its diversity goals. ・The UK plans to introduce legislation limiting bicycle speed. ・Experts forecast that specialist bank mortgage lending in the UK will reach £16 billion by 2030. The Bank of England may raise interest rates by 0.5% in September; the latest inflation rate hit a 40-year high. According to a Reuters report (17 August), 30 out of 51 economists surveyed by Reuters expect the Bank of England to raise its base interest rate from 1.75% to 2.25% in September—another 0.5-percentage-point hike. The remaining 21 economists anticipate a more modest increase—to 2.0%, i.e., a 0.25-percentage-point hike. According to the latest data released by the UK Office for National Statistics (ONS) on 17 August, consumer prices rose 10.1% year-on-year through July—the highest level in nearly 40 years. Jake Finney, an economist at PwC who participated in the Reuters poll, said: "The latest 10.1% inflation figure will force the Bank of England to act more decisively—likely raising the base rate by 50 basis points at its next meeting in September." Debapratim De, Senior Economist at Deloitte, added: "Energy costs will rise further, pushing inflation higher still—but the UK’s base rate remains relatively low at just 1.75%. We expect the Bank of England to act swiftly, potentially doubling the base rate by this time next year." Earlier this month, the Bank of England raised its base rate from 1.0% to 1.75%—its largest single hike in 27 years. The Bank expects UK inflation to exceed 13% this autumn, driven by surging energy bills. Meanwhile, Bloomberg reported (17 August) that the Bank of England may raise its base rate to 4% by year-end. At the same time, the ONS reported that 160,000 new jobs were created in the three months to June, bringing the national unemployment rate to 3.8%—unchanged from last month and the lowest since 1974. However, the Bank forecasts unemployment will begin rising from mid-2023 and climb to around 6.3% over the following three years. UK wage levels are falling at the fastest pace on record due to inflation. Although average UK wages rose 4.7% between April and June, inflation is accelerating far faster. Adjusted for inflation, real wages fell by 3%—the steepest decline ever recorded. Data also reveal a widening gap between public- and private-sector wage growth. Between April and June, average private-sector wages rose 5.9%, while public-sector wages rose only 1.8%—the largest disparity on record. Last month, the UK government announced pay rises for millions of public-sector workers—including teachers, nurses, doctors, police officers, and armed forces personnel—yet most increases fall short of the current 9.4% inflation rate.

UK inflation rises ahead of the central bank’s interest-rate decision, narrowing the window for holding rates steady.

In early July, the UK energy regulator Ofgem raised the household energy price cap by 13%, directly pushing up electricity and gas prices. Meanwhile, Brent crude oil recently surged past $100 per barrel. Ofgem has also announced plans to raise the energy price cap again in October—suggesting energy prices may continue supporting inflation over the coming months. David Rees, Schroders’ Global Head of Economics, stated that UK inflation could rise further over the coming months, as energy, industrial goods, and food prices continue passing through to end consumers. According to The Wall Street Journal, markets now expect UK CPI to reach or exceed 4% early next year—double the Bank of England’s 2% target. Core inflation remains stable, temporarily preserving room for the Bank to wait and see. However, rising headline inflation does not yet signal broad-based price pressures across the economy. In August, core inflation—excluding energy and food—held steady at 2.6%, while services inflation—a key focus for the Bank—remained unchanged at 3.4%. This suggests current inflationary pressures remain concentrated in external factors like energy, rather than evolving into broader domestic price pressures. Francesco Pesole, Strategist at ING, noted there is “still no evidence of inflation spreading beyond energy,” lending support to dovish voices within the Bank. A cooling labour market similarly provides some breathing room for the Bank to pause. Official data released Tuesday showed private-sector wage growth (excluding bonuses) slowed to 2.8% for the three months to July—down from 2.9% previously—and average weekly earnings rose just 2.9% year-on-year. David Rees pointed out that current wage trends have not yet reignited the wage-price spiral seen in 2022. In other words, unless the energy shock further accelerates wages and service prices, the Bank still has grounds to observe—not immediately hike rates—in response to energy-driven price spikes. The Bank’s wait-and-see strategy faces mounting pressure. The issue lies in the duration and transmission scope of the energy shock. Since the outbreak of Middle East conflict in February, the Bank has held rates steady, awaiting clearer evidence on whether inflation will persist. At its most recent meeting in July, the Monetary Policy Committee (MPC) voted 6–3 to hold rates unchanged—highlighting growing internal divisions. Yael Selfin, Chief Economist at KPMG, said rising energy prices may test the Bank’s “wait-and-see” strategy. She argued that current price increases do not appear driven by overheating demand or second-round effects—but if inflation persists, the Bank may deliver a pre-emptive rate hike in November. Until then, the energy price shock remains an external factor largely outside the Bank’s direct control.

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