DeVere Group: UK faces Christmas interest rate-hike amid inflation surge
Millions of British families and businesses are likely to be hammered by two interest rate rises before Christmas as an inflation surge that began at the petrol pump spreads into everyday bills and costs, warns the CEO of deVere Group.
The comments from Nigel Green come as official figures show UK inflation jumped to 3.5% in September, up from 3.1% in August and above the 3.4% economists had pencilled in. It’s the third consecutive monthly rise and the highest annual rate in a year.
He comments: 'This is the third rise in a row, and once again it’s come in higher than expected. The Bank of England has very little room left to sit on its hands. Britain buys a lot of its energy from abroad, so when oil prices jump, the country feels it quickly. Drivers and haulage firms have been paying for it at the pumps for months, and now it’s showing up right across the economy.'
Motor fuel prices soared 29.8% in the year to September, up from around 23% in August and the steepest climb since the summer of 2022. Prices rose 0.4% in September alone, ahead of the 0.3% forecast.
Crucially, the pressure has spread well beyond the forecourt. Services inflation accelerated to 3.7% from 3.4%, while core inflation, which strips out energy, food, alcohol and tobacco, climbed to 2.8% from 2.6%, beating forecasts. Goods inflation reached 3.2%, its highest since September 2023.
'What concerns me most is services,' notes the deVere CEO. 'Fuel prices move up and down with the oil market. When businesses start charging more for services, those increases usually stick. If the Bank sees that happening, it’ll keep raising rates.'
Markets put the odds of a quarter-point hike to 4% next month at 98%, with most traders also expecting another rise in December. Nigel Green predicts the Bank will deliver both, and believes rates are likely to stay elevated for much of 2027.
'I’d now expect a hike in November and another in December,' he says. 'Inflation’s heading the wrong way, it’s spreading into services, and the Bank knows it was too slow last time. Having raised rates twice, it’s hardly going to turn around and cut them a few months later. Unless the economy weakens badly, cuts next spring look very unlikely to me.'
Britain now also stands out among its neighbours, with inflation running above both France at 3.4% and Germany at 3.3%. 'Inflation was under 3% as recently as July, and now Britain’s running hotter than France and Germany,' explains the deVere CEO. 'It’s quite a turnaround in a matter of months.'
The squeeze is likely to land hardest on stretched households. Real wage growth had ground to a halt even before the energy shock struck, and unemployment has hovered around 5% for much of the year. 'A lot of families are already paying more to fill the car and heat the house, and their wages haven’t kept pace,' he says.
'Now their mortgage is likely to go up as well. People coming off fixed deals next year are going to notice a big difference in what they pay each month. Savers aren’t immune either. With inflation at 3.5%, money left sitting in a low-paying account is losing value every month.' Businesses face a similar bind, with higher energy and transport bills now set to be joined by dearer borrowing.
'Firms are getting it from both sides,' says Nigel Green. 'Their running costs are up, and the cost of a loan or an overdraft is about to rise again. A lot of companies that borrowed cheaply a few years ago will be refinancing at far higher rates. Smaller businesses have already absorbed as much as they can. Some will raise prices, others will hold back on hiring or investment, and either way it slows the economy down.'
He believes the Bank’s resolve is being shaped by the memory of its last inflation fight. 'The Bank was too slow in 2021, and it’s been paying for it ever since,' he concludes. 'It won’t make the same mistake twice, even if the economy takes a knock. Higher borrowing costs are going to be part of life for British households and businesses for a good while yet.'