Buying a house is a major financial goal that many people spend much of their early working life trying to achieve.

With average house prices rising by 1.3% in the last year to £298,184, and houses in high-demand areas like London being worth an average £543,497, according to Halifax, being able to buy a home may seem nearly impossible.

But, if you can afford to do so, getting on the property ladder may be more worthwhile in some areas of the country than others.

Buying a house in most major UK cities outside London with a low deposit is cheaper than renting, new research by Lloyds shows.

Looking at the average house price for a first-time buyer and calculating how much the average mortgage would cost with a 5% deposit, Lloyds found that some renters could save thousands of pounds a year by buying a house rather than renting.

The mortgage calculations are based on a 4.78% interest rate fixed for five years, with a 30-year repayment term.

The top five cities where you could save by buying

Glasgow

The British city where you will save the most money by buying a house rather than renting is Glasgow, the research found, where the average price a first-time buyer pays for their property is £172,000.

Assuming a 5% deposit of £8,800, a monthly mortgage payment would cost £855 on average. But renters would typically have to fork out £1,251 – nearly £400 more – every month just to rent a property in the city, Lloyds said.

Over the course of a year, renters in Glasgow could save £4,752 by moving into a property of their own once they save up £8,800.

Newcastle

Moving just south of the border, Newcastle is the city where renters could save the second-most by buying a property of their own.

The average first-time buyer property costs £180,000 in the city, with monthly mortgage payments being £895 assuming a 5% mortgage deposit of £9,000.

Meanwhile, renters are spending an average of £1,112 a month to live in the city, £217 more than the average first-time buyer mortgage. Over the course of a year, it’ll mean the homeowner will be £2,604 better off than the renter.

Edinburgh

Scotland’s capital city is the place where renters could save the third-most by buying a house.

The average first-time buyer house here costs £243,000 – a 5% deposit would be £12,150. Monthly rental payments in Edinburgh are an average of £1,392, but mortgage payments are just under £200 less at an average of £1,208.

Over the course of a year, the average renter will pay £2,208 more for their accommodation than if they had bought a house.

Bristol

The city where you could save the fourth-most by buying instead of renting, and the first in the south of England, is Bristol, where the average first-time buyer house costs £311,000.

The typical cost of a mortgage for a house this much is £1,547 a month, assuming a 5% deposit of £15,550.

On the other hand, a renter will pay £231 more to live in the city, paying an average of £1,778 a month. Over the course of 12 months, the renter will have paid an average of £2,772 more than the homeowner for their accommodation.

Manchester

Manchester finishes off the list of top five cities where it is cheaper to own a house than rent.

In the north-western city, a first-time buyer house costs an average of £234,000, with a monthly mortgage payment of £1,164, assuming a 5% deposit of £11,700.

Paying the mortgage is typically 11.6% cheaper than renting in the city. A renter pays an average of £1,317 for their accommodation, £153 more than the homeowner every month, climbing to £1,836 more over 12 months.

The cities where it’s cheaper to buy than rent: Full list

Source: Lloyds, October 2025. Data does not include Northern Ireland, GB average excludes London.

What is stopping people from buying?

Seeing the raw figures, it may seem puzzling that so many people rent when they could actually save money (and build equity) by buying a house.

The biggest hurdle for many people who want to make the leap between renting and buying is saving up for a deposit.

When you are paying more than the cost of a mortgage to rent in a city, it can be difficult to find cash at the end of the month to put into a savings account for your house deposit.

Furthermore, average house prices have grown faster than average earnings in the past 25 years, making homes much more expensive in real terms.

In 2024, the average house in England cost 7.71 times more than the average annual salary. For comparison, this ratio was 6.85 in 2010 and 4.19 in 2000, according to data from the Office for National Statistics (ONS).

This means prospective buyers will need to save up even more money to afford a deposit.

Amanda Bryden, head of mortgages at Lloyds, said: “We know that saving for a deposit is one of the biggest hurdles for first-time buyers. With rents having risen sharply over the last two years, many are already managing monthly payments that are higher than a typical mortgage.

“That’s why low-deposit mortgages could be the right solution for many – helping people move from renting to owning sooner than they thought possible.

“It’s also important to consider other upfront costs like legal fees and moving expenses – but for most, the long-term savings will outweigh these.”

Can buying a house help build long-term financial security?

Buying a house can often be a good financial decision as it offers you more security and helps you build financial stability.

Even with a low deposit of 5%, a homebuyer could reduce their loan-to-value ratio from 95% to 87% over five years – even if their property does not increase in value by a single penny.

When combining the savings you get by buying instead of renting with the merits of paying off equity on your home, Lloyds worked out how much “better off” owners are than renters after five years.

Glasgow again tops the chart as owners are £28,978 better off than renting after five years. Owners in Bristol are £23,295 better off, those in Newcastle are £18,481 better off, those in Edinburgh are £18,412, and those in Manchester are £16,279 better off.

The table below shows how much better off owners are than renters could be after five years.

Source: Lloyds, October 2025

Rail fares could increase by 5.8% in 2026 in another blow for Brits hoping to keep costs down.

Rises in rail fares are traditionally calculated from July’s inflation data, using the Office for National Statistics’ Retail Price Index (RPI) and adding one percentage point. RPI came in at 4.8% in July, one percentage point higher than CPI.

Though the government is yet to announce how they will regulate increases for next year’s rail fares, if they stick to the way the calculations were made previously, we can expect that rail fares will far outpace inflation and rise by 5.8% in 2026.

Inflation hit an 18-month high of 3.8% in July – far above the Bank of England’s 2% target.

Assuming a rise of 5.8% goes ahead, this would add £247 to the price of an annual season ticket from London to Woking, which was recently named the top commuter town to the capital, bringing it from £4,260 to £4,507.

Elsewhere in the country, an annual season ticket from Sheffield to Rotherham could rise by £41, from £712 a year to £753.

With such a steep fare increase not ruled out by the government, campaigners have called on ministers to spare commuters from increased costs.

Paul Kohler MP, Liberal Democrat spokesperson for transport, urged the government to freeze fares.

He said: “Rail passengers are already paying sky-high prices for overcrowded trains and unreliable services. Hiking fares yet again would be a betrayal of passengers who are simply trying to get to work, travel to school or visit family and friends.

“Families and hardworking commuters are being hit with the cost of living crisis month after month, and now face being ripped off on the railways too. Pricing people off the trains will only drive more cars onto our congested roads, increase pollution and damage our economy.”

These sentiments were echoed by Ben Plowden, chief executive of the Campaign for Better Transport, who pointed out that the government will have increasing agency over how much rail fares rise.

“With the railways now moving under public control, the fundamental question for the Government is how to use its role in setting fares policy to deliver a more affordable rail network and encourage more people to travel on it,” he said.

“Next year’s annual rise represents the first real opportunity for the Government to show passengers – both current and future – just how it plans to do this.”

With a fare rise seeming likely, we look at some ways that you can save money on your rail fares.

How to save money on your rail fares

If rail fares are adjusted in the ways they were in previous years and climb by 5.8%, this would be felt universally on all types of tickets and routes.

However, while you may not be able to escape the blanket increase, there are some tricks that can help you save money on your train tickets.

Railcards

One of the most popular ways to do this is by purchasing a railcard. These are discount cards that can be bought by certain types of travellers for around £35. They give the holder a discount of around 33%.

While all people aged 16 to 30 and over 60 qualify for them, people who are aged in between these figures may find it more difficult to buy them – but there are some options.

For example, if you regularly travel with another person you could get a Two Together Railcard, which slices fares by a third so long as you are with the person you name on the card.

The official railcard website has a tool which helps you find the best railcard for you.

Split your tickets

Another popular way to drive down the price of your train tickets is by splitting up your journey across different tickets. While this can often result in cheaper tickets, this is not always the case.

As this is quite a complicated process, most people now use online tools to split their tickets to get the best deal possible.

The most popular website that does this is Trainline, but some other websites like Trainsplit do the same thing.

Book 12 weeks in advance

Another way you may be able to reduce the price of your train fares is by booking in advance.

Train tickets are released 12 weeks in advance of their scheduled departure day and the earlier you buy your tickets, the cheaper they tend to be.

However, timetabling can change in the intervening weeks, so bear this in mind when booking in advance.

Navigating financial markets requires a reliable set of instruments. Unfortunately, the pandemic exposed the shortcomings of even the most long-running data series. We have to accept that our statistical indicators have struggled to keep up with the pace of technological change, and have to adjust our course accordingly. It’s time to move from log tables to GPS.

The normally staid world of statistics was rocked by US president Donald Trump conducting yet another round of his reality-television show The Apprentice, when he fired the US commissioner of labour statistics. However, the US bureau of labour statistics (BLS) had already been struggling for some time. Over the last 18 months, it has “inadvertently” released inflation data early, posted the annual employment revisions late and informed some financial institutions (referred to by a BLS employee as “super users”) about details in the data that others might have missed. It has been a torrid time, even before Trump’s return.

At least the president is grasping the nettle of change. The UK remains without a permanent “national statistician”, after the prior holder, Sir Ian Diamond, resigned early for health reasons. The UK also remains without its main employment indicator ever since the Labour Force Survey (LFS) was withdrawn in October 2023. Its replacement might not be ready until 2027. The Bank of England has been left to cobble together its own version as the monetary policy committee unsurprisingly “continues to place less weight” on the official LFS data.

The problem with the data comes down to how it is collected. A letter is sent to households and then followed up by a phone call or an in-person interview. During Covid, this led to the response rate falling as low as 17%, but it has failed to recover enough to ensure the data is reliable. Who would respond to a phone call in the modern world – let alone a letter?

A small miscalculation can cost a lot

It’s not just citizens who cannot be relied upon. The Office for National Statistics (ONS) had to announce that April’s UK CPI data was inflated by 0.1 percentage points owing to an error in vehicle excise duty provided by the Department for Transport. Someone, somewhere in some spreadsheet, had overstated the number of vehicles subject to this duty in their first year of registration. On such small miscalculations can our navigation plot the wrong course; fortunes can be won or lost. The yield on short-dated index-linked gilts moved by several basis points on entirely the wrong information. Financial markets are volatile enough without supposedly reliable data adding to the confusion.

Statistics are supposed to be the signal within the noise: staging posts around which we divine where the path ahead lies. But what if we are looking at the completely wrong map? The world has changed utterly in the last five years. We were already in the midst of a multi-decade “technological revolution” when Covid arrived and accelerated the paradigm shift. Working remotely and conducting relationships entirely virtually encouraged resources to be deployed into fresh technology such as AI. With each step forward in computational power, we have taken a leap forward in our evolution.

In the new world, it makes less sense to monitor indicators such as the manufacturing cycle. Investors have long referred to the US ISM Manufacturing data as a bellwether for the US economy: it has been available since 1945 and has demonstrated a strong correlation with the US business cycle. With economics only a social science, experiments cannot be repeated in laboratory conditions – but a survey running for eight decades is about as good as it gets... until a once-in-a-century pandemic forces the economy to shut down and re-open again.

In one year, the ISM Manufacturing number plunged to a 12-year low and then surged to a 40-year high. A survey is only a sentiment indicator, not a hard gauge of activity. Firms went from staring disaster in the face to sheer relief once the fear wore off and vaccines emerged. There was no business cycle, no smooth journey from bust to boom. It was simply a shock. The ISM data told us very little about it.

We are still living through the consequences of that shock as the economy finds a new post-Covid equilibrium. Physical borders have been reimposed as technology spreads intangibly between consumers all over the globe. Indebted governments of ageing nations are struggling to marshal ever more scarce resources towards the drivers of growth. A basis point on unemployment or inflation no longer makes the marginal difference. The old data we have relied on for decades is making it harder to spot the path ahead.

Technology should make it easier to update, collect and disseminate information in a quick, clear and fair fashion. Real-time updates could come from Google mobility data, aggregated credit-card spending, LinkedIn and Indeed job postings, energy usage, or even satellite imagery of carparks and warehouses. If we can order food, taxis and romantic partners from an app in the palm of our hand, then technology companies should be able to publish aggregated activity data fairly easily. Losing trust in statistics will leave us all at sea. Technology ensures we can recalibrate before we drift too far off course.

Helen Thomas is the founder and CEO of Blonde Money, a macroeconomic consultancy.

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Pay continues to grow for workers across the UK – but have you ever looked at yours and wondered how it compares to your peers?

The median monthly pay for employees before tax is £2,626 (May 2026), according to the latest data from the Office for National Statistics (ONS), up 4.6% from £2,511 in May 2025.

But earnings from a job can vary dramatically based on your role, age and where you live.

The ONS regularly releases data on worker pay based on these factors, so you can cross-check whether you’re keeping up with others in your age group.

What is the average salary by age?

The ONS looks at median pay when assessing earnings figures. The statistics body says this offers a more accurate reflection of the “average wage”, as it discounts extreme pay earned by people at both ends of the data.

It also breaks down the figures based on age brackets, with the latest data showing the median pay for UK workers aged 0 to 17 is £457 a month.

This is unsurprising, as many aged 0 to 17 will not be in work and earning, dragging the median figure down.

Once you get to the 18 to 24-years-old bracket, when many people start entering the workforce, the median pay jumps up to £1,830 a month.

The figures show pay typically continues to rise after this point – median pay for 25 to 34-year-olds is £2,820, more than the overall UK median of £2,626.

Median pay is highest among 35 to 49-year-olds, who have years of experience and pay rises behind them. The median pay for this age group is £3,062 per month.

After this, average pay begins to slide, as workers filter out of the workforce and retire.

Fifty to 64-year-olds earn a median monthly pay of £2,698, while those aged 65 and over, around state pension age, see a significant drop off in their monthly pay (£1,582).

Credit: ONS

Where do people get paid the most and least in the UK?

The latest data from the ONS shows, unsurprisingly, Brits living in specific areas in London have the highest monthly pay on average when looking at the whole of the UK.

Research from the Institute for Fiscal Studies think tank found pay growth post-pandemic was concentrated in business service sectors, which tend to be highly paid and located in and around the capital.

Workers who live in Wandsworth have the highest monthly median pay – £3,984 and well over the UK average of £2,626.

Median pay in Westminster is £3,935, according to the ONS’s latest data, while workers living in Camden and City of London earn a monthly pay of £3,759.

The 10 highest-earning areas across the UK are in the capital.

Credit: ONS

The areas where people earn the least each month are spread across the UK. Median pay for people living in coastal spots like the Isle of Wight, Torbay, Blackpool and Gwynedd (Wales) all fall well below the UK average.

The median monthly pay in each of these four places is £2,279, £2,304, £2,326 and £2,331, respectively.

Monthly pay is also well below the UK average in Leicester (£2,301), Blackburn and Darwen (£2,312) and Bradford (£2,346).

What jobs pay the most?

Work is highest paid in the information and communication, and finance and insurance sectors, based on the ONS’s latest data.

Workers in the information and communication sector earn a median monthly pay of £4,093 while those in finance and insurance receive £4,193 on average.

Pay in the construction sector is above the UK average as well, with the median worker earning £2,816 a month.

The median education worker earns around £2,619 a month, according to the ONS, while those in the manufacturing sector get £3,070 a month.

The latest data from the ONS also shows where pay is rising the most, with health and social care workers receiving the highest increases (7%) in the year to May 2026.

The median monthly construction pay rose by 5.7% while those working in information and communication saw median pay increase by 4.7%, above the UK average of 4.6%.

Unemployment rose in the three months to March, reversing a drop in February, as official figures start to show the impact of the Iran war on the UK labour market.

The UK jobless rate was 5% in the quarter to March, according to the latest figures from the Office for National Statistics (ONS), up from February’s reading of 4.9%.

Most economists had expected unemployment to stay at 4.9% in March, but economic pressures from the Iran war have prompted some firms to reconsider their hiring plans.

The number of vacancies in the UK fell in March too – there were 104,000 fewer job openings than at the same time last year, a dip of 0.3%, and 28,000 fewer than February (0.1%).

March’s dip in job openings has brought vacancies to a five year low.

Early estimates for April indicate that the Iran war put an even larger pressure on hiring during the second month of the conflict, with the ONS anticipating around 100,000 fewer vacancies in April compared to March.

Liz McKeown, director of economic statistics at the ONS said: “Latest figures suggest the labour market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago.

“The number of payroll employees continued to fall in the three months to March, while regular wage growth slowed further.”

This softening of the labour market is one consequence of the worsened economic landscape following the beginning of the Iran war on 28 February, according to Victoria Scholar, head of investment at interactive investor.

She said: “The Middle East conflict is taking its toll on the UK labour market. Businesses are becoming more reluctant to take on the expensive long-term fixed costs of permanent hires amid the unstable economic backdrop and the threat of inflation which will increase cost pressure for companies.

“The combination of rising prices and higher unemployment raises concerns about a painful stagflation scenario.”

While the headline rate of unemployment has reached 5% for all workers, the official figures show that younger workers are experiencing a much higher rate of joblessness.

The ONS’s figures show youth unemployment has reached an 11-year high as the number of people aged 16 to 24 without a job has climbed to 16.2%, the highest level since January 2015.

Youth unemployment has been on the rise since it reached a recent low of 9.2% in July 2025, with some blaming the government’s decision to increase the cost of hiring in the 2024 Budget.

Wages grow at slowest rate for six years

While unemployment is rising, the rate of wage growth is falling, with the latest figures from the ONS showing it is at its lowest level in six years.

Earnings grew by an average of 3.4% (excluding bonuses) in the year to March. When including bonuses, wages grew by an average of 4.1% in the same time period.

The figures also show a significant disparity between wage growth in the public and private sectors.

Public sector pay, excluding bonuses, grew by 4.8% or 4.9% when including bonuses, while private sector workers saw their wages grow by an average of just 3% excluding bonuses and 3.9% including them.

When adjusted for inflation, real wage growth was just 0.1% without bonuses, and 0.8% including bonuses.

Susannah Streeter, chief investment strategist at Wealth Club, said: “Wage growth is still only just inching ahead of inflation, and by a meagre amount. This is likely to keep spending subdued, particularly as households brace for more bill increases ahead.

“This is likely to keep a lid on discretionary purchases, with retailers and hospitality firms particularly vulnerable if consumers continue cutting back on bigger-ticket purchases and prioritising essentials.”

What does a softening labour market mean for interest rate cuts?

While a softening labour market is usually bad news for workers, the silver lining is that it acts as a downward pressure on inflation, as prices rise slower when demand dips.

This is why the Bank of England pays such close attention to labour market statistics, as they can provide crucial information about whether or not the Monetary Policy Committee (MPC) should cut, hike, or hold interest rates.

Streeter explained that under normal circumstances, labour market statistics like this most recent set “would be the kind of mood music likely to prompt expectations of interest rate cuts.”

However, the economic shockwaves of the Iran war mean a rate cut is very unlikely in the coming months, with pressure building for the MPC to hold rates for longer.

Sanjay Raja, chief UK economist at Deutsche Bank, added: “This is the sort of data that will allow the MPC to stay on hold for longer while it digests the impact of the Iran conflict.

“The rise in unemployment combined with the slowdown in wage pressures will buy the MPC more time. Importantly, the debate around two-sided risks to the economic outlook will only grow from here.”

The Office for National Statistics (ONS) is the UK government’s statistics authority, charged with “collecting, analysing and disseminating statistics about the UK’s economy, society and population” – chiefly for use by government and policymakers. The ONS is the executive office of the UK Statistics Authority, with headquarters in Newport, South Wales, and since 2008 it has been a non-ministerial department that reports directly to parliament, rather than the government.

But there’s a growing feeling that some of its statistics are no longer fully reliable. In a Mansion House speech in November, the Bank of England’s governor, Andrew Bailey, said that unreliable labour market statistics have become a “substantial problem” for the UK central bank in terms of policymaking. In particular, the Bank’s chief economist, Huw Pill, believes that ONS figures are probably understating employment growth and overstating the high rates of labour-force inactivity. In addition, in recent months the Office for Budget Responsibility and parliament’s Treasury Select Committee (plus several think tanks) have all flagged up fears about the reliability of ONS data – and the resulting adverse effects on policymaking.

What problem is the Office for National Statistics facing?

In terms of the labour market, a big part of the issue is falling response rates for the ONS’s Labour Force Survey (LFS). This vital survey involves a letter sent to households and followed up with a phone or in-person interview. Whereas ten years ago response rates were about 50%, they were falling even before the pandemic and then plunged during the various lockdowns. Since then, they’ve remained low, at just 17.3% in 2023 and are expected to be even lower in the past year. Ian Diamond, the ONS’s chief, says that, even after raising the incentives for participating in face-to-face interviews from £10 to £50, the public has become much more reticent. The reasons included “cautiousness around the sharing of personal information, declining trust in government and public institutions, a reluctance to have interviewers inside homes and increased challenges accessing secure/gated properties”.

What are the implications?

The smaller sample means the data is less reliable and some economists think the LFS is now more likely to record people who are at home – thus overestimating the level of economic inactivity overall. The Resolution think tank estimates that the LFS may have “lost” up to 930,000 workers. And the ONS itself has downgraded the status of its employment data from “national statistic” (its gold-standard category) to “experimental”. That’s a problem, as it means policymakers are flying blind and “grand narratives rest on shaky numbers”, says The Economist. Why has Britain – alone among rich Western nations – suffered such high levels of economic inactivity post-pandemic? The question could scarcely be more important to the country’s future, yet it seems the phenomenon might well have been a “statistical artefact of increasingly dodgy data”. The LFS is “essentially useless”, says Xiaowei Xu of the Institute for Fiscal Studies. “It’s a huge problem.”

Are improvements on the cards?

The ONS is working on a new “online-first” version of the survey, which will ask shorter questions, making it less hassle for participants, and boost participant numbers. The system is currently being trialled through introductory letters containing a QR code that can be scanned from a mobile phone. But last month, Diamond admitted this probably won’t be ready to go live before 2027 – leaving the agency’s key stakeholders unimpressed. Meg Hillier, chair of the Treasury Select Committee, says the delay would rob policymakers of reliable data about the jobs market, making “some of the most consequential decisions taken by the Treasury and Bank of England challenging at best and misinformed at worst”.

Are there other problems with the Office for National Statistics?

Yes. When it comes to net inward migration, the ONS has been dramatically underestimating the numbers. Recently it revised its figure for 2023 from 740,000 to 906,000 (that’s almost another Oxford). And it upped its 2022 figures, too – from 606,000 to 872,000 (a second Stoke); or look at housing, where the ONS data is “not fit for purpose”, says Neal Hudson in the Financial Times. It relies too heavily on incomplete building-control data from one source, the National House Building Council, which undercounts the true number of new dwellings. The ONS’s numbers on production, trade and GDP are widely regarded as more reliable, says Andrew Sentance on CapX. Even so, the Living Costs and Food Survey, an important factor when it comes to assembling the GDP figures, now gets a similar low response rate to the LFS, making data less reliable and (even) more susceptible to later revision.

What can be done?

The ONS deserves credit for being a generally trusted source of accurate data, says Sentance. But its ability to adapt its data collection and analysis techniques nimbly is “a vital part” of its remit, and it’s where the agency has sometimes been “slow and hesitant”. Problems with the LFS, for example, first emerged in 2021; a solution should be in place by now, not 2027. The ONS’s regulator, the Statistics Authority, should demand a 90-day action plan setting out how the agency proposes to become “action-oriented and responsive” to users’ concerns; and failing that, the Treasury should intervene and oversee improvements. As for response rates, the state needs to become far more assertive about compelling participation in nationally important data collection – in every area from the economy, to health, to the justice system, says The Economist. “Britain is a blind state.” Given the country’s deep-seated problems, that’s a self-inflicted wound it can scarcely afford.

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UK inflation was unexpectedly steady in May, but experts warn that higher inflation could be on horizon as the UK starts to feel the economic consequences of the Iran war.

Inflation was 2.8% in the year to May, holding at the same level it was in April, according to the latest data from the Office for National Statistics (ONS).

Most experts had anticipated price growth to rise after oil and gas prices soared in the wake of the Iran war.

However, the economy proved to be more resilient than most expected. One driving factor in May’s data was low food inflation.

In the year to May, food prices grew by 2.2%, the slowest rate in 17 months. This helped push overall inflation down by 0.07 percentage points.

Other notable downwards contributions to the inflation rate came from the housing and household services, furniture, clothing, restaurant, and recreation sectors.

Meanwhile, the largest upwards contributor was the transport sector, where inflation was 6.8% in the year to May. Price growth for airfares, vehicle taxes, and motor fuel costs pushed May’s overall inflation up by 0.29 percentage points.

However, while lower-than-expected inflation in May was a positive sign, experts have warned that low inflation is unlikely to hold.

Where could inflation go next?

Experts think inflation is likely to rise in the following months as we continue to feel the effects of disrupted global trade thanks to the Iran war.

In particular, the war led to the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, being shut.

That made oil prices surge, impacting motor fuel and heating oil prices. But as oil is used in the production of a significant portion of the things we use and buy every day, price shocks will likely be felt more widely.

While the Iran war looks to be winding down, with a memorandum of understanding set to be signed, oil prices have fallen. However, it will still be some time before they go back to pre-war levels as the production and distribution of oil needs to be restarted.

With prices remaining at elevated levels, inflation will still likely tick up in the UK during the rest of the year.

Meanwhile, the energy market is also under pressure because of the war.

Energy bills for millions of households and businesses will increase in July when the next Ofgem energy price cap comes in.

The new cap will reflect the increased wholesale price of energy because of the war, meaning households on the price cap will be paying an average of 13% more for their energy than they did between April and June.

Prices are set to stay high in the final quarter of 2026 too, with energy consultancy Cornwall Insight, whose price cap forecasts are well-regarded, expecting the price cap to rise by a further 2% in October.

Before the war, the consultancy thought energy prices would be around £1,645 in July this year – more than £200 lower than July’s confirmed level.

The UK is particularly sensitive to the wholesale energy market because it is a net importer of energy from overseas, meaning it is left at the whim of the market to set prices.

Moreover, even firms that do not produce goods derived from oil and gas markets will likely need to hike prices as the costs associated with running the business (such as energy bills and transportation costs) are still exposed to those markets. These costs will likely be passed on to the consumer.

Where do experts think inflation will go?

Unfortunately for Brits, most economists are united in thinking that inflation will rise for the rest of 2026.

The latest forecast from the Bank of England estimates that inflation will stay just under 3% for most of 2026 before rising to a “little over” 3.25% in the final quarter of the year.

While this means that inflation is likely going to stay well above the 2% target for the rest of the year, the positive news is that this latest prediction is significantly better than the one produced by the central bank in April, which said prices could peak at 3.6% this year in their best-case scenario or 6.2% in their worst-case scenario.

Deutsche Bank expects inflation is set to rise in 2026, but to a less extreme peak than previously thought.

Sanjay Raja, chief UK economist at Deutsche Bank, said: “With a US-Iran [memorandum of understanding] in sight, the prospects of a softer rise in CPI have increased.

With oil prices dropping meaningfully, this is expected to slowly filter through to the overall inflation data over the summer and winter, helping it stay lower than previously expected, he said.

Raja added: “And, in even better news, the fall in oil prices has coincided with a fall in gas prices. It’s looking increasingly likely that the Ofgem price cap could be lower as opposed to higher come October 2026, bringing some much-needed relief for UK households and businesses.”

While this news is positive for the inflationary outlook in the UK, it all rests on the assumption that inflation will still be above target for the entire year.

And though expectations are now far from April’s worst-case scenario, it still means prices will accelerate one percentage point faster than many economists had previously expected in 2026.

What’s the link between inflation and interest rates?

Inflation above the 2% target is always a cause for concern for economists, policymakers and consumers.

The Bank of England is particularly focused on inflation, as it has a remit to ensure prices do not spiral out of control.

This is largely done through setting interest rates, which are typically raised to fight inflation.

The trade-off to fighting inflation with higher interest rates is reduced economic activity. When interest rates are high, people have to use more of their earnings on expenses like their mortgage and are incentivised to save their cash as savings rates tend to be higher.

What does the inflation outlook mean for future interest rate cuts?

With inflation expected to stay significantly above the Bank of England’s target, interest rates are unlikely to be cut any time soon.

In the most recent meeting of the Monetary Policy Committee on 18 June, members decided to hold interest rates at 3.75% for the fourth consecutive meeting. The motion passed by seven to two.

The two members who did not vote with the majority (Huw Pill and Megan Greene) voted to hike rates to 4% as a preventative measure against the potential for more severe second-order inflationary effects.

This move was in line with most forecasts by economists, and experts believe that interest rates will stay at 3.75% until at least early 2027.

Deutsche Bank believes that the first time we could potentially see a rate cut on the table again is spring 2027. Meanwhile, Oxford Economics believes that the first cut may be seen in late 2027.

For more on the future of interest rates, read our article on where interest rates will go next.

Uncertainty ahead of this month’s Budget saw asking prices for homes in the UK rise by much less than expected in October.

According to data from property website Rightmove, asking prices increased by just 0.3% in October, well below the 1.3% average for the month.

The near stasis comes as Rachel Reeves prepares to deliver her first Budget as chancellor on 30 October, with many fearing policy changes and tax rises that could be detrimental to house price growth.

However, Rightmove says a glut of properties on the market also dampened price rises. The number of homes available for sale was 12% higher than the same time period last year.

Tim Bannister, the company’s director of property science, said: "This month's subdued price growth comes as buyer choice soars to a level not seen since 2014. With the ball in the buyer's court and the pick of a big crop to choose from, sellers need to be pricing competitively to find a buyer.

“Some estate agents report that movers are also now waiting for Budget clarity and anticipated cheaper mortgage rates later this year.”

Buying a house in a 'new town' is cheaper

The findings come after lender Halifax reported that house buyers could save up to £50,000 by purchasing a property in a new town built after the Second World War compared to elsewhere in the UK.

Halifax says the average house price in a new town is £300,656, as opposed to a UK average of £346,995.

Over the past 30 years, Halifax says the average price of a property in a new town, such as Milton Keynes, has jumped by 441 per cent, slightly behind the average for the whole of the UK at 454 per cent.

However, some new towns have seen significant property spikes. Crawley in West Sussex tops the list, with property prices surging by 543 per cent since 1994, from £63,712 to £409,836.

What is happening with house prices?

House prices rose by 1.5% in August, bringing the annual growth rate to 2.8%, according to official figures.

The average price of a property in the UK now sits at £293,000, an £8,000 uplift compared to a year ago.

The Land Registry index, which differs from the way Halifax calculates prices, shows that annual house price inflation was highest in the North West, where prices increased by 4.6% in the 12 months to August. The South West had the lowest annual inflation of all regions in England, with prices rising by just 0.8%.

Jeremy Leaf, estate agent and a former RICS residential chairman, says: “This most comprehensive of all house-price surveys, as it includes cash and mortgage transactions, demonstrates once again considerable market strength despite reflecting activity over the past three months at a time of economic and political turbulence.

Where have house prices risen the most?

The official house price index from the Land Registry and the Office for National Statistics reveals that of the four UK regions, values rose the fastest in Northern Ireland.

Average house prices in Northern Ireland jumped 6.4% over the past year to reach £185,000. This was followed by 5.4% growth in Scotland, with the average property now costing £200,000. In Wales, house prices rose 3.5% to reach £223,000. Meanwhile, in England prices increased 2.3% to £310,000.

In terms of English regions, the North West saw the fastest annual house price growth (4.6%), followed by Yorkshire and the Humber (4.4%), and then the West Midlands (2.6%).

The slowest house price inflation was seen in the South West (0.8%), followed by London at 1.4%. The average home in the capital now costs £531,212.

Homeowners in the UK who bought their property in the last 20 years are sitting on average gains of £80,000, according to Zoopla.

Research from the property website also found that those who sold their home in the last 12 months, made £65,000 on average, despite a recent drop in house prices.

Izabella Lubowiecka, senior property researcher at Zoopla, said: “Millions of UK homeowners are sitting on tens of thousands of pounds in property value gains since they moved into their current home."

Drilling down further, the data showed that four-fifths of homes in the Cotswolds and Richmond upon Thames have increased in value by £65,000 in the last 20 years.

Zoopla said “homes in high value areas and commuter hotspots have seen the largest property gains in the last 20 years”, with Richmond, which is “often viewed as one of London’s highly desirable suburbs due to its unique atmosphere, plentiful green spaces and fast connections to central London” rising significantly.

Toby Leek, president of property industry body, Propertymark, added: “For the many people who choose to purchase their own homes, it remains upbeat news that we continue to witness robust house price growth.

"When you consider events such as the financial crash of 2008 and the coronavirus pandemic, which took their toll on property prices, and in some cases pushed people into negative equity, it’s positive news to see a long-term trend of house price grown across the marketplace."

Buying a house in a 'new town' is cheaper

The findings come after Halifax reported that house buyers could save up to £50,000 by purchasing a property in a new town built after the Second World War compared to elsewhere in the UK.

The lender says the average house price in a new town is £300,656, as opposed to a UK average of £346,995.

Over the past 30 years, Halifax says the average price of a property in a new town, such as Milton Keynes, has jumped by 441 per cent, slightly behind the average for the whole of the UK at 454 per cent.

However, some new towns have seen significant property spikes. Crawley in West Sussex tops the list, with property prices surging by 543 per cent since 1994, from £63,712 to £409,836.

What is happening with house prices?

House prices rose by 1.5% in August, bringing the annual growth rate to 2.8%, according to official figures.

The average price of a property in the UK now sits at £293,000, an £8,000 uplift compared to a year ago.

The Land Registry index, which differs from the way Halifax calculates prices, reveals that annual house price inflation was highest in the North West, where prices increased by 4.6% in the 12 months to August. The South West was the English region with the lowest annual inflation, where prices rose by just 0.8%.

Jeremy Leaf, estate agent and a former RICS residential chairman, says: “This most comprehensive of all house-price surveys, as it includes cash and mortgage transactions, demonstrates once again considerable market strength despite reflecting activity over the past three months at a time of economic and political turbulence.

Where have house prices risen the most?

The official house price index from the Land Registry and the Office for National Statistics reveals that of the four UK regions, values rose the fastest in Northern Ireland.

Average house prices in Northern Ireland jumped 6.4% over the past year to reach £185,000. This was followed by 5.4% growth in Scotland, with the average property now costing £200,000. In Wales, house prices rose 3.5% to reach £223,000. Meanwhile, in England prices increased 2.3% to £310,000.

In terms of English regions, the North West saw the fastest annual house price growth (4.6%), followed by Yorkshire and the Humber (4.4%), and then the West Midlands (2.6%).

The slowest house price inflation was seen in the South West (0.8%), followed by London at 1.4%. The average home in the capital now costs £531,212.

The UK economy shrunk in the month to April, fuelled by a retreat in the vital services sector, as the effects of the Iran war started to bite.

The 0.1% contraction is the first time the UK economy has posted negative growth figures since August 2025, the Office for National Statistics (ONS) found.

GDP growth had been strong in the first quarter of 2026, with the economy expanding by 0.6%, showing surprise resilience against the Iran crisis.

But now the full scale of the economic disruption from the war is starting to be seen.

Official data shows the April contraction was driven by a 0.2% fall in the services sector, which accounts for around 81% of the UK’s economic output.

Within this sector, the arts, entertainment, and recreation subsector fell the most (down 0.5%) thanks to a 4.9% fall in sports and recreation activities.

The ONS said some of the fall could be attributed to the cancellation of “multiple sporting events in the Middle East affecting the output of UK-based businesses”.

The contraction was partially offset by a 0.1% rise in the construction sector. Meanwhile, the production sector showed 0% growth.

In terms of quarterly GDP growth, the figures show the size of the economy has increased by 0.7% in the three months to April, up from 0.6% in the three months to March.

Figures like these have long been anticipated by experts. Many were surprised at how resilient the UK economy was in the first quarter of 2026, but the scale of the economic disruption from the Iran war is now showing itself.

Chancellor Rachel Reeves blamed the impact of the war for the disappointing growth figures. She said: “Before the conflict in the Middle East, growth was higher than expected and inflation was falling. This is not a war we wanted or joined, but one that will have an impact at home.

Where will GDP growth go in the rest of 2026?

Though the economy had shown resilience despite the impact of the war in the first quarter, most economists doubt we will see any strong growth for some time.

The Iran war, which started on 28 February, has prompted a rise in global prices, largely through the increased price of oil and gas as the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, has been mostly blockaded since February.

Motorists have already been feeling the pain as the price of petrol and diesel is up around 23.9p and 36.4p respectively since the war started and households will also be hit with a 13% increase in energy bills from July.

As each of these lead to price increases, most economists think inflation will rise over the course of this year, reversing previous predictions that it would fall this year.

Stuart Clark, portfolio manager at Quilter, said: “We expect the economy to continue to fade as the year goes on, and particularly for as long as there is no lasting peace deal in the Middle East. Even if a deal is to materialise, costs have increased and are unlikely to come back down to levels seen prior to the conflict, and as such growth will be constrained regardless.

“With higher energy costs hitting businesses, and a rise in the energy price cap looming for households, growth is likely to grind to a halt once again,” he added.

The Bank of England’s Monetary Policy Committee (MPC), the panel of 9 experts who meet every six weeks to decide whether to raise, hold, or cut interest rates, will be watching the GDP figures closely.

The MPC next meets on 18 June and most experts expect they will hold interest rates at 3.75% for the fourth time in a row.

The UK’s rate of inflation dipped to 2.8% in the 12 months to April, but experts have warned that inflation is set to soar in the rest of 2026 as the economy deals with the fallout from the Iran war.

The Consumer Prices Index (CPI) figures published by the Office for National Statistics (ONS) showed the drop in inflation was largely driven by a cut to energy bills, but was partially offset by rising prices for motor fuel.

Experts also noted that the latest data looks lower than it should be as prices in April 2025 were abnormally high thanks to a set of bill increases that landed that month.

Higher prices a year ago makes price growth between April 2025 and April 2026 look smaller in comparison.

Most economists forecast that inflation will climb from this recent low back to a level closer to 4% by the end of this year due to the economic consequences of the war in Iran.

But when are the next CPI figures published? We reveal the key dates for 2026 you should know below.

Next UK inflation figures

In the UK, the main measure of inflation is CPI. The Office for National Statistics (ONS) releases this once a month. Each reading covers the previous month.

CPI release dates for 2026

• 17 June (covering May)
• 22 July (covering June)
• 19 August (covering July)
• 16 September (covering August)
• 21 October (covering September)
• 18 November (covering October)
• 16 December (covering November)
• 20 January 2027 (covering December)

What time is CPI released in the UK? 

The ONS publishes the latest inflation data at 7am on the above release days.

All key macroeconomic data from the ONS is published at 7am – this includes GDP, labour market and wage data.

What is CPI and how is it calculated?

CPI, the main measure of inflation used in the UK, tells you how fast the cost of living is increasing (or decreasing).

It is calculated using a basket of typical household goods and services which changes once per year to reflect current trends and consumption.

Houmous and non-alcoholic beer were added to the basket in 2026.

The Bank of England keeps a close eye on CPI when setting interest rates. If inflation is too high, the Bank may raise interest rates to slow consumer spending and cool the economy.

This works to bring prices down because households have less money to spend when mortgage rates are high and debts are more expensive to repay.

Meanwhile, if inflation is too low, the Bank may reduce interest rates so consumers have more disposable income to spend. Due to the laws of supply and demand, this should push prices back up and stimulate growth in the economy.

The Bank of England meets eight times a year to set the base rate, which is the core interest rate for the UK.

The base rate (also called the bank rate) is the rate of interest that the Bank of England charges commercial banks, building societies, and other financial institutions that hold money with, or borrow from, the central bank.

Changes to the base rate therefore have a knock-on effect on mortgages, savings and loans to consumers.

If the base rate is lowered, you may find your mortgage rate is cut or your savings account pays less in interest. The reverse is true if the bank hikes rates.

The base rate is usually adjusted as a way to control inflation in the economy. The central bank typically increases rates when inflation is too high, and eases them when price growth returns closer to the bank’s 2% target.

The Bank of England had been gradually cutting interest rates since the summer of 2024, bringing them down from a peak of 5.25% to 3.75% in December 2025. They’ve since been held at that level.

However, war in Iran has spooked markets around the globe and economists have warned that it could lead to significantly increased inflation in the UK.

It was for this reason that interest rates were held at 3.75% at the most recent meeting of the bank’s Monetary Policy Committee (MPC), despite most analysts predicting a March rate cut before the war.

The nine members of the MPC voted by a majority of 8-1 to hold interest rates, with the one outlier, Huw Pill, voting to raise rates by 0.25 percentage points to 4%.

Many analysts now believe the MPC will not cut interest rates at all in 2026 in order to protect the country from the threat of soaring inflation, though some experts argue that rate rises are on the cards.

The next MPC meeting decision is due to be confirmed on 18 June.

Bank of England interest rate announcement dates

The MPC meets roughly every six weeks to set the base rate. The meetings usually happen the day before the interest rate announcement.

Here is the full list of dates when the MPC interest rate decision will be announced by the Bank of England in 2026:

• 18 June
• 30 July
• 17 September
• 5 November
• 17 December

What is the Bank of England’s Monetary Policy Committee?

The Bank of England’s Monetary Policy Committee is the body that is responsible for setting the bank rate.

The committee is made up of nine members and is currently chaired by BoE governor Andrew Bailey.

Five of the members are internal staff, while the remaining four are external experts appointed to make sure the MPC benefits from expertise outside the Bank of England.

During each meeting, the committee votes on whether to cut, hold or raise interest rates.

A representative from HM Treasury also sits with the MPC at its meetings, and can discuss policy issues, but is not allowed to vote. They are simply there to make sure the ratesetters are briefed on fiscal policy developments in government, and that the chancellor is kept fully informed about goings on at the bank.

Average house prices ended 2023 down 1.4% but appear to be rebounding slightly on a monthly basis, Office for National Statistics (ONS) data suggests. 

The latest ONS house price index shows that while average house prices fell in the 12 months to the end of 2023, they rose by 0.1% between November and December.

It is the fifth consecutive month of annual declines but the drop was smaller compared with the 2.3% decline registered for November 2023.

The update puts average house prices at £284,691, £4,000 lower than 12 months ago.

There is a time lag with the ONS data as it is based on Land Registry submissions for sales that could have been recorded at least two months beforehand.

But it is seen as a more comprehensive view of the housing market as it contains both mortgaged and cash transactions compared with Halifax and Nationwide house price reports that focus on their own lending activity.

“House prices finished the year down compared to 2022, as the gap between what sellers would accept and buyers would pay for a home narrowed, says Nicky Stevenson, managing director at estate agency brand Fine & Country.

“However, the small uptick in prices in December lends credibility to the suggestion that the property market is in a much healthier position overall than it was at the start of last year.”

In contrast, Nationwide’s house price index for December 2023 suggested average values dropped by 1.8% in the 12 month period but it has since said property prices were up 0.7% on a monthly basis in January but remained down 0.2%.

Meanwhile, Halifax’s house price data suggests average prices actually rose 1.7% during 2023 and were up 2.5% annually in January.

This highlights the importance of checking all house price reports as they use different datasets.

How did the property market perform in 2023?

The housing market faced plenty of challenges last year from high inflation to rising interest rates.

Mortgage pricing went above 6%, denting buyer budgets and reducing demand.

This caused house price growth to slow and drop towards the end of the year.

London saw the biggest hit, according to the ONS data, with average prices down 4.8% in the 12 months to December 2023. 

Annual house price inflation was highest in the North West of England, where prices increased by 1.2%.

On a monthly basis, the South East of England’s housing market experienced a 1.9% drop in December, while the West Midlands was the best performer with average prices up 2.6%.

All property types fell in value, with terraces down the most at 2.5%, followed by flats at 2.3%.

Detached homes were down 0.8% annually, while semi-detached properties fell 0.2%.

Is now a good time to buy a property?

The housing market has changed since the final months of 2023, especially as interest rates have remained frozen at 5.25% since August.

This has boosted confidence, with property websites Zoopla and Rightmove reporting increases in demand as many consider whether now is the right time to buy a home.

“Pauses in the base rate have increased consumer confidence, and expectations are that rates could fall at some point this year, which will widen affordability and encourage more demand,” adds Stevenson.

“The news that inflation held at 4% will boost hopes that interest rates will be cut sooner than anticipated.

““The Bank of England has also reported three consecutive monthly increases in mortgage approvals as momentum builds in the housing market. 

“This pent-up demand from buyers who paused or held off on their property search means there is growing activity on the market. However, pricing attractively still remains key for sellers who want to grab attention and secure viewings and offers.

The rate of inflation is also lower while borrowers have been benefiting from a mortgage price war, with average pricing dropping closer to 5% and some best buy deals below 4%.

But the inflation rate remains high at double the Bank of Englands (BoE) 2% target and brokers are warning that lenders are becoming more cautious.

Some lenders are pulling the best mortgage deals or hiking pricing as hopes of an imminent interest rate cut from the BoE fade.

“The December 2023 government house price index shows a housing market that a couple of months ago was on course to rebound in 2024, but this now looks less clear amidst fluctuating mortgage rates seen this week,” says Rosie Hooper, chartered financial planner at Quilter Cheviot.

“The recent uptick in mortgage rates might signal a more cautious period ahead. The increased borrowing costs could dampen the momentum of house price rises, prompting potential buyers to rethink their plans in a tighter mortgage market. This adjustment could slightly cool a market that has otherwise demonstrated resilience in the face of significant economic challenges.

“The ongoing competition among lenders and serious lack of housing supply is likely to keep house prices buoyant and if and when interest rates are cut, it’s likely the property market will be off to the races again.”

Sarah Coles, senior personal finance analyst for Hargreaves Lansdown, highlights that 2024 started with an “air of optimism” in the housing market, with the Royal Institution of Chartered Surveyors reporting a rebound in buyer demand, but she warns against getting carried away.

“The fall in mortgage rates has stalled, and two-year rates have crept back up very slightly to 5.63%,” says Coles.

“Robust wage growth and higher services inflation means the Bank of England won’t be in a rush to cut rates, so mortgage prices could rise further as the market digests the fact we may not get rate cuts until the second half of 2024.

“Meanwhile, there are broader challenges on the horizon. We’re on the brink of recession, redundancies are on the rise, and there’s every chance that life gets tougher before it gets better. Throughout all the turmoil of recent years, the property market has been underpinned by a robust labour market. If we see this start to weaken, it won’t bode well."

The UK economy took an unexpected turn in the three months to September, as the latest GDP data, which measures the value of goods and services produced, show the UK economy flatlined, with no growth between July to September 2023.

This follows a 0.2% growth in the last quarter and 0.1% growth in August. 

The figures released by the Office for National Statistics come a week after the Bank of England warned that the UK could face zero growth until 2025, but is likely to avoid a recession.

Last week, the BoE froze interest rates for the second consecutive month following a pause in rates in September.

Analysts had predicted a 0.2% fall for the quarter and a flat reading for September.

The ONS reported 0.2% growth in the economy for the month of September, amid a boost from the film production, health and education industries.

The ONS also revised down growth in August to 0.1%, from 0.2%, and reported a 0.6% decline for July.

Economists said the manufacturing and construction sectors particularly helped to support growth over the end of the quarter.

ONS director of economic statistics Darren Morgan said: “The economy is estimated to have shown no growth in the third quarter.

“Services dropped a little with falls in health, management consultancy and commercial property rentals.

“These were partially offset by growth in engineering, car sales and machinery leasing.”

Will the UK go into a recession?

As it stands, the UK seems to have dodged a recession for now. 

Alice Haine, personal finance Analyst at Bestinvest says: “The dismal quarterly data will reignite fears that the UK economy might be heading into a recession - defined by two successive quarters of contraction – as higher interest rates weigh on demand in the run up to Christmas.”

Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International also thinks recession isn’t off the cards just yet. 

“Looking at the broader picture, it means GDP has shown no growth in the three months to September 2023 when compared with the three months to June 2023 - leaving Britain at risk of recession.

Huw Pill, chief economist at the Bank of England, said “in order to keep rising inflation at bay, the best medicine for the UK economy was to keep interest rates at their current level of 5.25%, this sense of déjà vu could rear its head again in the months to come. For rates to come down, next August is now the date to aim for”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “We continue to think that the chances of a recession look low; we look for a 0.3% quarter-on-quarter increase in GDP in Q4 and expect that pace to be broadly maintained next year.”

Additional reporting by PA

The UK economy recovered from the pandemic faster than previously thought, revisions from the Office for National Statistics (ONS) showed. 

Gross domestic product (GDP) was estimated to be 1.8% above pre-pandemic levels in the second quarter of 2023 – previously the ONS thought GDP was 0.2% smaller than it was pre-pandemic. 

The figures show the UK rebounded faster than France and Germany. The revisions were larger than normal due to the “practical challenges of estimating GDP” throughout the pandemic, the ONS said. 

“It has been a shock turn of events that the narrative around the UK’s sluggish post covid recovery has been completely flipped on its head because of statistical revisions,” said Victoria Scholar, head of investment at interactive investor. 

“Despite this, the pound is on track for its worst month in a year since the mini-Budget turmoil in 2022,” she adds. “The depreciation has been driven by demand for the dollar amid expectations of higher for longer interest rates as well as risk-off investor appetite. There are also growing concerns about a risk of a UK economic slowdown or even a recession in the months ahead, weighing on sterling, as elevated inflation and higher interest rates take their toll.”

UK GDP grew in the second quarter

UK GDP is estimated to have grown by 0.2% in the three months from April to June. The ONS also revised GDP growth for the first quarter, showing the economy grew by 0.3% instead of 0.1%. 

Growth was largely driven by an increase in the production sector thanks to falling input prices, which “relieved pressure on manufacturers”, says Scholar. 

“While momentum is overall positive, these levels of growth aren’t exactly shooting the lights out,” says Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. “Higher interest rates are playing their part in turning the nation’s economic thermostat down and this will play a key role in upcoming interest rate decisions.”

Where is the UK economy headed?

"We know that the British economy recovered faster from the pandemic than previously thought, and today's data once again proves the doubters wrong,” says Jeremy Hunt.

“The best way to continue this growth is to stick to our plan to halve inflation this year, with the IMF forecasting that we will grow more than Germany, France, and Italy in the long term," the Chancellor adds.

“Economist Jake Finney at PwC, however, is less optimistic about the future. "Unfortunately, this snapshot of economic data is not significant enough to change the overall picture of a flatlining economy," he says.

Ruth Gregory, deputy chief UK Economist at Capital Economics, shares a similar lack of optimism. "Overall, today's release changes very little. The data leaves the economy still only 0.6% above its level a year ago," she says.

"It does not change the big picture that the economy has lagged behind all other G7 countries aside from Germany and France since the pandemic. And that's before the full impact of higher interest rates has been felt," she adds.

The UK economy grew slightly in the three months to June, boosted by a recovery in car manufacturing and strong consumer spending. 

Gross domestic product (GDP) increased by 0.2% in the second quarter, according to the Office for National Statistics (ONS), beating economists’ forecasts for zero growth. In the first quarter, GDP ticked up by 0.1%.

“GDP grew a little, with widespread growth across manufacturing — aided by falling raw material prices — computer programming and hospitality,” says ONS director of economic statistics Darren Morgan.

The services sector grew by 0.1% in the quarter, driven by increases in information and communication, accommodation and food service activities, and human health and social work activities; elsewhere, the production sector grew by 0.7%, with 1.6% growth in manufacturing.

The figures are slightly stronger than suggested by the Bank of England’s (BoE) forecast, which pencilled in a 0.1% expansion between the first and second quarters, as did independent economists.

On a monthly basis, the economy grew by 0.5% in June as businesses bounced back from the extra bank holidays for the Coronation in May.

"Services also had a strong month with publishing and car sales and legal services all doing well, though this was partially offset by falls in health, which was hit by further strike action," Morgan says.

"Construction also grew strongly, as did pubs and restaurants, with both aided by the hot weather,” he adds.

Will the BoE raise interest rates?

The BoE has said that while it no longer expected the economy to fall into recession, it would remain near stagnation for the next two years. It recently hiked interest rates for the 14th time in a row to 5.25% as it attempts to bring down inflation.

The rate of inflation fell faster than expected in June but remains high at 7.9%.

The growth of 0.2% recorded in the last quarter is “a far cry” from the significant recession that seemed likely at the start of this year, says Thomas Pugh, economist at audit, tax and consulting firm RSM UK.

“We think the economy will avoid a recession, but only just,” he adds.

However, consultancy Capital Economics is sticking with its forecast that the UK is heading for a mild recession later this year.

“Overall, the bank holiday, unusually warm weather and strikes make it hard to judge the true health of the economy. But our sense is that underlying activity is still growing, albeit at a snail’s pace. We still think that with most of the drag from higher interest rates still to come, GDP will fall in Q3 and a mild recession will begin,” Ruth Gregory, deputy chief UK economist says.

“That may not prevent the Bank from raising interest rates from 5.25% now to 5.50% in September. But it may mean that rates don’t rise as far as the 5.75-6.00% envisaged by the consensus and investors,” she adds.

Money markets still think it is likely the BoE will raise interest rates at its next meeting in September, despite the unexpectedly strong growth in the UK economy.

“The better-than-expected GDP figures are likely to galvanise the BoE’s zeal to continue to raise interest rates,” says David Baker, a partner at Mazars.

“The Bank will remain very concerned about the persistence of inflation and will reflect on near full employment and high wage inflation as reasons to keep policy tight,” he adds.

Chancellor Jeremy Hunt says the actions the government has been taking to fight inflation "are starting to take effect, which means we are laying the strong foundations needed to grow the economy".

He adds: "The BoE is now forecasting that we will avoid recession, and if we stick to our plan to help people not work and boost business investment, the IMF have said over the longer-term, we will grow faster than Germany, France and Italy."

The UK is the only major advanced economy yet to have met pre-Covid levels of late-2019, the data shows. It is now 0.2% below that level as of the end of June. That's compared with 0.2% above for Germany, 1.7% for France, 2.2% for Italy and 6.2% for the United States.

What does this mean for you?

The UK economy might be growing, but that does not mean the cost-of-living crisis will simply go away.

The figures show the UK has dodged recession, which is when GDP contracts for two quarters in a row, but the outlook remains gloomy for families and businesses.

Signs of trouble can be found in the softening labour market, with unemployment edging up to 4%, while company insolvencies are also on the rise, putting more jobs at risk. 

“Rents are soaring while the number of mortgage holders in arrears on their repayments rose in the second quarter of the year, as higher mortgage rates and persistent cost-of-living challenges added further pressure to household budgets already at breaking point,” says Alice Haine, personal finance analyst at Bestinvest. 

“With the Bank of England widely expected to push ahead with another rate rise at its next meeting in September, this will only heighten the pain for borrowers already contending with rising repayment levels.”

The outlook for consumer spending and economic activity in the third quarter is likely to be more uncertain – despite petrol prices having come off their highs – as the impact of elevated interest rates starts to bite. Interest rates in the UK are currently at their highest level in over 15 years, warns Michael Hewson, chief market analyst at CMC Markets UK.

"With more and more fixed rate mortgages set to get refinanced in the coming months the second half of the year for the UK economy could well be a lot more challenging than the first half," he says.

The average 2-year fixed residential mortgage rate is currently at 6.80%, according to data provider Moneyfacts. The average 5-year fixed residential mortgage rate stands at 6.28%. 

“Conditions are likely to get worse from here as higher interest rates take full effect, wages slow and the jobs market weakens. These things may be necessary in the fight against persistent inflation but it means there’s more uncertainty to come for households,” Ed Monk, associate director for Personal Investing at Fidelity International, says.

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The UK economy grew slightly in the first quarter of the year but underperformed in March, figures from the Office for National Statistics show.

The ONS recorded gross domestic product (GDP) grew 0.1% in the first three months of 2023. But in March the economy shrank by 0.3% due to a fall in the services and retail sectors as the cost of living crisis hurt consumers.

The GDP data follows the Bank of England’s (BoE) latest base rate announcement, where it also released fresh forecasts for the economy in which it upgraded its outlook for the UK’s GDP over the coming year.

The BoE had previously predicted the UK would enter a year-long recession, but it admitted the economy had “turned out to be more resilient” than expected, and that it no longer expected the UK to enter a recession at all.

Instead, it expects the UK economy will grow 0.25% this year.

What is affecting UK GDP growth?

The services sector fell 0.5% in March and was the main contributor to the fall in monthly GDP. The biggest fall was recorded in vehicle sales, but the arts, entertainment and recreation sector posted the most growth. Real estate activities also posted growth.

Output in consumer-facing services fell 0.8% in March following growth of 0.4% in February due to widespread industrial action.

But the production sector output grew 0.7%, the strongest monthly growth since May 2021. Manufacturing also grew 0.7%, and was the largest contributor to growth for the month.

Where next for the UK economy?

“The UK appears to be stuck in limbo,” says Jonathan Moyes, head of investment research at Wealth Club. “This is the third broadly flat quarter for GDP in a row. Whilst the data suggests the UK is performing far better than most expected last year, it remains a challenge to reconcile how the UK economy can escape a recession after such a steep rise in interest rates.

“Nonetheless, whilst strike action continued to affect the data, particularly for services, manufacturing and construction are clearly pockets of strength. If confidence surveys are to be believed, there has been a notable uptick in services in April, which may give a boost Q2 numbers.”

The economy should also be helped by forecasts of falling energy prices as well as increased household spending, says Sophie Lund Yates, lead equity analyst at Hargreaves Lansdown.

But still, challenges remain. “There’s no sugar coating the fact that growth remains very sluggish – the UK is hardly on course to shoot the lights out this year. The main issue is that inflation is set to fall more slowly than expected, partly because of the unprecedented rise in supermarket prices,” she adds.

Indeed, the BoE expects inflation to remain above its 2% target until 2025 and indicated the prime minister’s promise to halve inflation by the end of the year looked tough in the face of sticky food inflation.

“The labour market also remains very tight, and high levels of job security makes for more money pumping around the system,” continues Lund-Yates. “This all leads back to the fact interest rates will have to rise again to bring inflation in line. As things stand, the average household may have to pay £200 extra a month on mortgages, and that could have real implications for the housing market, and by proxy, banks and housebuilders, in the not-too-distant future.”

Interest rates will likely be held at 3.75% for the foreseeable future as policymakers continue their ‘wait and see’ approach to monetary policy in the wake of the Iran war.

In the latest meeting of the Monetary Policy Committee (MPC) on 18 June, interest rates were held for the fourth consecutive meeting, with the motion passing by seven votes to two.

This action was widely predicted by economists as we are still in a highly uncertain point – while the Iran war seems to be winding down with a memorandum of understanding set to be signed by the United States and Iran, much of the economic damage will persist even after hostilities cease.

Inflation is expected to accelerate this year due to the impact the war has had on global energy prices and oil prices, meaning interest rate cuts are probably off the table for the time being.

The current environment is a far cry from where experts thought the economy would be this year. Before the war, most expected that inflation would fall sustainably this year, allowing the MPC to make several rate cuts in 2026.

How is inflation influencing interest rates?

The MPC uses economic data to help inform its interest rates decisions.

One of the most important economic metrics used by the MPC is the rate of inflation. This is because the Bank of England has a mandate to keep price growth under control.

The Bank’s inflation target, like that of most western central banks, is 2%, which economic consensus says is a healthy level of inflation in an economy that stimulates spending while keeping prices under control.

The main way the central bank works to achieve this goal is by increasing or decreasing interest rates.

Broadly speaking, when inflation is too high, the MPC will raise interest rates, and when it is too low it will lower them.

These are not the only two reasons why interest rates are moved, though. For example, rates might be lowered if economic growth is too slow, to help speed up the economy.

Inflation is currently above the 2% target and has been for quite some time. The latest official inflation figures showed the Consumer Prices Index (CPI) remained at 2.8% in the 12 months to May.

This was lower than forecasts by most economists, and was in large part due to May having the lowest level of food inflation in 17 months.

But despite the positive inflation figures in May, most economists expect inflation will rise over the course of 2026 as the UK economy contends with the inflationary shock caused by the Iran war.

Economists at the BoE say they now expect inflation to remain just below 3% for most of the year, but briefly rise to “a little over” 3.25% in the fourth quarter of 2026.

With forecasts showing that inflation is set to remain above-target for the rest of 2026, it is unlikely that the Bank of England will decide the environment is right for an interest rate cut.

The rest of the economic background

Inflation is not the only data the MPC examines to make base rate decisions. Another key metric is the state of the labour market.

In the orthodox view of economics, a softer labour market with higher unemployment and poor wage growth is a disinflationary pressure in the economy, while strong wage growth and full employment drives up inflation.

The latest set of labour market data, published on 18 June, showed unemployment dipped slightly from 5% in the three months to March to 4.9% in the three months to April.

While a fall in unemployment is welcome, it is yet to be seen whether this is the start of a prolonged overall fall in joblessness.

At the same time, regular wage growth slowed to a near-six year slump. Regular earnings grew by 3.4% in the year to April, rising to 4.4% when including bonuses.

This was led by the public sector, where wages grew by 5.1% in the 12 months to April while private sector earnings grew by just 2.9% in the same period.

As for economic growth, the picture is not positive either.

The UK economy shrunk in the month to April, as GDP fell by 0.1% thanks to disruption from the Iran war, stoking fears that a recession may be around the corner.

This is a reversal from the economic recovery the UK was seeing in the first quarter of 2026, when GDP grew by 0.6%.

Will interest rates fall in 2026?

Between August 2024 and December 2025, the Bank of England cut interest rates six times – roughly once a quarter, and each time by 0.25 percentage points.

That cutting trend brought the base rate down from a recent high of 5.25% to 3.75% in December 2025.

However, rates have remained on ice since then, with four consecutive meetings of the MPC deciding to keep rates at 3.75%, ending the roughly quarterly cadence of rate cuts we saw since the summer of 2024.

Economists were already doubting that quarterly rate hikes would continue in 2026 before the Iran war solidified it, speculating that the interest rates were getting closer to the UK economy’s neutral rate of interest.

Now, with the spectre of rising inflation once again stalking the UK, almost all economists think the MPC will keep rates at 3.75% for some time as they wait to see how much economic damage there is.

The next MPC meeting will take place on 30 July, and by that time we will have seen another month’s worth of economic data, showing where prices went in June and the state of the labour market and economic growth in May.

The committee will pour over this data and look at what it means for the future of interest rates.

If the figures show that the economic consequences of the war are in line with current expectations, then we can expect rates to stay held again.

But if inflation rises more than expected, we could see a rate hike to help contain price growth.

In the latest MPC meeting, two members (Huw Pill and Megan Greene) voted to hike rates as they believed it was needed to keep inflation under control as they assessed second-round inflationary effects to be more of a risk than the rest of the committee.

If the data shows Pill and Greene’s hypothesis is correct, we can likely see more MPC members vote for a hike.

This being said, the most likely scenario at the July MPC meeting is that rates will stay at 3.75% as the inflationary shock of the war is expected to be less extreme than the Bank’s April forecasts showed.

Economists at Deutsche Bank expect interest rates to be held at 3.75% for at least the rest of this year, with the possibility of rate cuts coming back on the table in spring 2027.

Sanjay Raja, chief UK economist at Deutsche Bank, said the economic data has so far given the MPC extra time to fully assess the situation before potentially moving interest rates.

He said: “With data more favourable than expected, and an Iran/US deal in place, the need to act swiftly has reduced. The MPC can let the dust settle before deciding on its next course of action with a full economic update and a more complete communication package in July.

“We expect Bank Rate to remain on hold through the remainder of the year. We still see the case for rate cuts to resume from spring next year. While we flagged one-sided risks to the interest rate outlook, developments – both domestically and geopolitically – have opened up more balanced risks to the monetary policy outlook.”

This is similar to the forecast from economics advisory firm Oxford Economics, which sees rates on ice until around late 2027. At that point, they believe the MPC could start cutting interest rates again.

Andrew Goodwin, chief UK economist at the firm, said: “On balance, we can’t see any reason to change our call that Bank Rate will remain at 3.75% for the rest of this year.

“The majority of the committee appear content to sit back and see how events play out, and we don’t expect to see leading indicators showing evidence of growing second-round effects that might trigger a change of heart.”

He added: “Our current baseline shows cuts resuming in late 2027, with the committee erring on the side of caution about underlying inflation pressures. But the chances of an earlier move are rising.”

An earlier cut would be reliant on a lasting peace being reached by the US and Iran, however.

The UK economy narrowly avoided a recession in 2022 despite a 0.5% fall in gross domestic product (GDP) in the final month of the year.

The latest data from the Office for National Statistics (ONS) showed GDP was flat in the three months to December 2022, while annual GDP output is estimated to have grown by 4.1% in 2022. GDP fell by 0.2% in the three months to the end of September.

“While the 0.5% decline in output in December is far from ideal, the positive news to hang onto lies in the flat quarterly figure, which confirms that the UK has narrowly avoided falling into recession – technically defined by two consecutive quarters of negative growth,” says Alice Haine, personal finance analyst at BestInvest.

“This comes despite the volley of blows battering the economy in the final three months of 2022 – from high inflation and borrowing costs to falling real incomes and persistent industrial action.”

Is the UK heading for a recession?

While these figures show the UK narrowly avoided a recession in 2022, there could be further pain ahead for the economy in 2023.

The Bank of England’s (BoE) latest forecast suggests the UK will enter a recession in 2023, but predicts it will be shorter and less severe than previously thought.

However, earlier this week the National Institute for Economic and Social Research (NIESR) said the UK is likely to avoid a recession, but called for more help for households in the upcoming March budget.

Strikes hurt growth in the final months of last year.

The services sector fell by 0.8% in December 2022 and was the main driver of the fall in GDP, the ONS said. The largest driver of the fall in the services sector was human health and social work activities, due to fewer GP appointments and operations partly due to strike action.

Education, arts, entertainment and recreation also saw steep falls. There was a fall of 17% in sports activities and amusement and recreation activities in the final month of the year as the Premier League delayed fixtures until after the World Cup. The production sector saw growth of 0.3%.

What’s next for the UK economy?

The UK is still widely expected to fall into a recession this year, and the International Monetary Fund expects it to be the only G7 economy not to grow this year. Instead, it’s forecasting a 0.6% contraction in 2023.

Rising interest rates are largely behind the economic slowdown. Last week the BoE raised rates by 0.5% to 4% – their highest level in 2008 – as it tries to bring the rate of inflation down to its 2% target. It’s currently running at 10.5%.

Rising interest rates encourage saving and discourage spending. They also increase the cost of borrowing, making it less attractive for businesses and consumers to borrow to spend.

Their impact has been felt in the property market, which has been on a downward trend since the end of 2022. The latest figures from the Royal Institute of Chartered Surveyors showed UK buyer demand is at its weakest since 2009.

Higher borrowing costs mean higher mortgage rates, which have turned property buyers off the market.

Additionally, energy prices are due to remain high, going up by 20% in April when the new Energy Price Guarantee comes into place. All of these factors are discouraging households from spending, and mean finances are likely to remain tight in the year ahead.

Still, both inflation and interest rates are expected to ease towards the end of the year, and forecasts are beginning to reflect this improving outlook.

“Higher mortgage rates won’t last forever,” adds Susannah Streeter, head of money and markets at Hargreaves Lansdown. “For homeowners, higher mortgage rates clearly bring huge challenges, and those with larger mortgages will feel the impact of rate rises magnified even further.

“However, for the millions on fixed rates that expire after the end of the year, there’s better news, because the base rate is expected to start falling, so the hit from remortgaging is likely to be smaller.”

“Inflation is inching down here in the UK and in other nations around the world, which have been sideswiped by punishing price spirals,” says Streeter. “There is also more confidence washing around, helped by the re-opening of China’s vast economy.

“This positive sentiment is helping the Footsie keep a spring in its step for now, as it hovers near fresh record highs, and could keep buoying the confidence of British consumers and companies in the months ahead.”

Inflation slowed for the second month in a row in December with the Consumer Prices Index (CPI) coming in at 10.5% over the 12 months to the end of 2022, from 10.7% the month before.

But the figure remains near historic highs as prices continue to be driven up by the high cost of energy, food and non-alcoholic beverages, the latest data from the Office for National Statistics (ONS) showed.

Breaking down the UK inflation figures

According to the ONS, the rate of inflation for housing and household services remained the same at 26.6%, primarily due to the high cost of electricity and gas. Despite the government’s energy price guarantee, the cost of energy for households has jumped significantly over the past two years.

Food prices increased 16.9% year-on-year (YoY), compared to 16.5% the month before, their 17th consecutive increase as households. Higher prices for milk, cheese and eggs were mainly responsible for the growth.

At the other end of the spectrum, the falling price of motor fuels helped inflation in this category fall from 7.6% in November (YoY) to 6.9% in December. That’s a notable improvement from earlier in the year. Prices in this category were 15.2% higher YoY in June.

Price growth also moderated in the clothing and footwear, and recreation and culture sectors.

However, price growth in the services sector continued to accelerate. The annual rate of inflation for restaurants and hotels rose to 11.4% from 10.2% the month before.

These figures seem to suggest inflation has peaked in the UK (CPI inflation hit a 40-year high of 11.1% in October), but households remain under significant pressure. The figure is still five times the Bank of England's (BoE’s) 2% target suggesting the central bank is likely to continue increasing interest rates.

“High inflation is a nightmare for family budgets, destroys business investment and leads to strike action, so however tough, we need to stick to our plan to bring it down,” said chancellor of the exchequer Jeremy Hunt.

“While any fall in inflation is welcome, we have a plan to go further and halve inflation this year, reduce debt, and grow the economy - but it is vital that we take the difficult decisions needed and see the plan through.”

What does inflation mean for you?

“The second consecutive monthly fall in inflation will raise hopes that peak inflation is behind us, but there is still a long way to go before inflation reverts to normal levels,” says Myron Jobson, senior personal finance analyst at interactive investor.

“For now, the ‘new normal’ of high inflation and rising interest rates threaten to squeeze household finances further.”

Runaway inflation has prompted the BoE to aggressively increase interest rates. Currently, the central bank’s base rate sits at 3.5% following its ninth consecutive increase mid-December. That’s its highest level since October 2008.

The BoE increased the base rate by 0.5% in December, following a hike of 0.75% in November.

The rate is now predicted to peak at 4.5% – previous estimates placed it at 6% by mid-2023 – and a further increase is expected when the bank next meets on 2 February.

Higher interest rates have had a knock on effect on mortgage rates.

In September, following Kwasi Kwarteng’s mini-budget announcement, they rose to an eye-watering 6.65%.

They have since eased to 5.79% and 5.63% for the average two-year and five-year deals respectively, but the property market is showing signs of a slowdown.

Indeed, most house price indexes have predicted prices will fall throughout 2023. Interest rates will remain high as long as inflation remains high, therefore so will mortgage rates.

“High inflation doesn’t just erode purchasing power, but it grates on personal wealth, with many households using up savings and leaning on credit cards to cover everyday expenses,” says Jobson.

Currently there isn’t a savings account out there offering a rate close to the rate of inflation.

But “this should not deter [savers] from seeking out a new savings deal,” says Rachel Springall, finance expert at Moneyfacts. If you are looking to secure a better rate, we have put together a list of the best deals on savings accounts which we regularly update.

“Interest rates on some of the top fixed deals have dipped since last month, as savings providers moved to adjust their market positions. Savers will need to act swiftly to grab the latest deals, as more movement is expected over the coming weeks.”

While the headline inflation figure is easing, it can “differ from your own personal inflation number, so it is worth keeping tabs on your spending habits,” says Jobson. “It may be easier said than done, but where possible, look for ways to boost your savings and pay down debt.”

Inflation has begun to ease in the UK, driven down mostly by falls in the price of petrol and second-hand cars, the Office for National Statistics’ latest data showed.

While inflation is still close to a 40-year high, the consumer prices index (CPI) rose by 10.7% in the 12 months to November, down from 11.1% in October.

The annual inflation rate for transport was down for a fifth consecutive month in November to 7.6% from a peak of 15.2% in June. Fuel prices rose by 17.2% for the year to November, down from 22.2% last month.

The ONS said food and non-alcoholic beverage prices rose by 16.5% for the 12 months to November, up from 16.4% in October. Prices in this category have grown for the last 16 consecutive months.

The inflation rate for restaurants and hotels partially offset slowing growth in other sectors rising to 10.2% in November from 9.6% in October. However, the clothes and footwear category slowed from 8.5% in the year to October to 7.5% in the year to November.

The figures are welcomed after last month’s 41-year high inflation peak of 11.1%, but households remain under pressure and will likely remain so over the coming months.

While the Energy Price Guarantee currently means the typical household pays £2,500 in energy bills, that’s due to go up 20% from April. It’s unclear when energy prices will begin to ease due to the ongoing war in Ukraine and its effect on Europe’s gas supplies.

The ONS’s latest snapshot of the labour market revealed the impact inflation has had on wages. Despite a 6.9% in private sector wages from August to October 2022, and a 2.7% in the public sector, when adjusted for inflation pay actually fell 2.7%.

While that’s slightly less than the record fall of 3% in the April to June quarter, it’s still among the biggest falls since records began.

Where will inflation go next?

The Bank of England is meeting tomorrow to discuss how much to increase the base rate. Currently, it’s at 3%, the highest it’s been since 2008, following a 0.75% hike in early November.

Higher interest rates encourage saving but discourage spending which in turn slows down the economy. Despite 0.5% growth in GDP in October, the UK economy shrank by 0.3% for the three months to October and the BoE has said rising interest rates might be partly to blame.

A further hike is expected tomorrow, but markets have estimated it to be around 0.5% as the BoE begins to let its foot off the gas pedal.

The figures raise “some difficult questions for policy makers”, says Nicholas Hyett, investment analyst at Wealth Club. Headline inflation is easing, but areas such as hospitality continue to see price increases which suggest core inflation “remains untamed”.

“That's a headache for central bankers – raising rates might help bring domestic inflation under control, but it will also exacerbate the cost of living crisis and potentially condemn the UK to a painful recession,” says Hyett.

“The Bank of England remains in a really tricky spot, as they need to raise rates given that inflation is far in excess of their 2% target, but the economy is in a parlous state,” adds Dan Boardman-Weston CEO and Chief Investment Officer at BRI Wealth Management.

“The Government and Bank of England have a difficult balancing act ahead of them and we hope they’re successful in reducing inflation without causing too much economic pain. This looks like a big ask though.”

What does rising inflation mean for you?

Finances are likely to “continue to be stretched for some time to come”, says Myron Jobson, senior personal finance analyst at interactive investor. “The Bank of England expects inflation to decelerate sharply from the middle of next year before falling back to the 2% target in two years' time.”

“The UK is facing a dangerous cocktail of high inflation, slowing economic growth and heightened financial vulnerabilities tied to high debt levels and rising interest rates which threatens to squeeze household finances further,” says Jobson.

“As such, it remains important to reassess your spending habits to get a better idea of the goods and services that are eating most into your and make the necessary adjustments to your current plan. If you don’t have a budget, now is a good time to start – and stick with it.”

As for investors, markets are likely to remain volatile over the next 12 months, says Rob Morgan, chief investment analyst at Charles Stanley.

"In this context, bonds are looking more attractive as an investment than they have done for more than a decade, particularly safer investment grade corporate debt which should re-establish its traditional role in a portfolio,” says Morgan. “Equities should also benefit from lower rates, but their resilience will be shaped by the outlook for the economy which may not be rosy."

Rising rates will affect homeowners and borrowers as repayment costs increase, and house prices have begun to decrease which could make now a good time to buy a house.

Finally, savers should keep an eye on the best savings accounts deals as rate increases start to filter through to savings accounts.

The latest data from the Office for National Statistics (ONS) shows that the UK’s economy grew 0.5% in October, returning to growth after a 0.6% fall in September. Despite these positive figures, many analysts still believe the UK is heading for a recession as September’s figures were affected by the extra bank holiday following the Queen’s funeral.

“October’s rebound is a false dawn for the economy as it mostly reflects the favourable comparison with September when activity was suppressed by the Bank Holiday for the Queen’s funeral,” said Suren Thiru, economics director at the Institute for Chartered Accountants of England and Wales.

“The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December, despite a possible boost to consumer activity from the World Cup,” said Thiru.

GDP fell 0.3% in the three months to October compared to the previous quarter.

Why did the UK economy grow?

The services sector mainly drove the 0.5% growth in gross domestic product (GDP). It grew by 0.6% in October following a fall of 0.8% the previous month.

While production remained flat, construction grew by 0.8%. That’s the sector’s fourth consecutive increase following growth of 0.4% in September, 0.6% in August and 0.2% in July.

Despite the seemingly positive figures, the Bank of England warned last month that the UK was probably already in a recession, adding that the country faced its biggest economic slowdown in decades.

The bank has been raising interest rates as it attempts to bring inflation under control. However, this has slowed down economic activity and harmed growth.

It’s also expected the Bank will raise rates again when it meets on Thursday. Currently, the base rate sits at 3%, its highest level since 2008. It’s speculated that the bank will increase it by 0.75%.

“The determined pursuit of sharply lower inflation in the UK is chasing away growth, with the economy set to run smack into recession,” said Susannah Streeter, senior investment and markets analyst, at Hargreaves Lansdown.

“The monthly rise of gross domestic product of 0.5% in October is likely to have been more of a temporary upswing rather than the start of a more positive chapter for the economy,” she continued.

What does this mean for you?

Most experts seem to agree that last month’s growth is more to do with the rebound from September’s temporary slump than anything else.

“Today’s number does little to change the grim outlook for the UK economy. Markets still expect a recession early next year. Demand is set to be weak, as high energy prices persist and winter has really just begun,” said George Lagarias, Chief Economist at Mazars.

“Meanwhile, the jobs market is projected to remain tight for months, and thus inflation persistent, until new workers have been trained appropriately to reduce the mismatch between the skills required and those available,” says Lagarias.

“Despite October’s growth, it would take a significant turnaround in policymaking and/or global conditions to change the downward British economic trajectory.”

There’s also the threat of further interest rate hikes. Rising interest rates will not only slow down the economy but will also mean higher borrowing costs, affecting those with mortgages and businesses which want to expand.

While mortgage rates have come off the highs seen after the disastrous mini-budget, they still remain high by the standards of the past five years at 5.99% for the average two-year fix and 5.74% for the average five-year fix.

These higher rates are already having a chilling effect on the property market.

Rightmove’s latest house price index showed a 2.1% decrease in average asking prices, while last week Halifax’s house price index revealed prices had fallen by 2.3% in November, their biggest drop since 2008.

Still, rising rates mean good news for savers. Banks are offering better rates on savings accounts, making now a good time to take advantage of the best deals on the market.

The word ‘recession’ is feared by many. It brings up worries about job losses, repossessions, and financial struggle. Most people know that recession broadly means “bad times for the economy”, but its strict definition is a bit more complicated.

A technical recession can be defined as when the economy has negative GDP growth for at least two consecutive quarters (six months).

The last time the UK was in a technical recession was in late 2023. That may come as a shock to some in the UK who have felt like the economy has been poor for some time.

While it is true that the economy has not been growing very much recently, the UK is not in recession as quarterly GDP growth has not turned negative for quite some time.

However, more commentators are now warning that the UK is at risk of a recession due to the economic shock of the Iran war, which is set to hit growth and send inflation soaring again.

This will be particularly frustrating for the government, as the latest GDP statistics showed that the economy grew by 0.6% in the first quarter of 2026 after years of weak growth.

What is a recession and how is one measured?

A recession is a situation where a country’s economy contracts (shrinks) instead of grows over two consecutive quarters.

Economic growth is widely calculated by gross domestic product (GDP), an internationally recognised yardstick that aims to measure the size and health of a country's economy in a way that can be compared to other nations.

In the UK it is reported monthly by the ONS, the official statistics body.

In simple terms, GDP is calculated by adding together total consumption, investment, government spending and net exports. For more detailed information on how the metric is calculated, read our GDP guide.

The ONS performs this calculation every month by sending out surveys to thousands of consumers and businesses. It also uses government spending data.

It then works out whether GDP has increased or decreased in a given period of time. If GDP grows, it suggests more money is moving around the economy and the country is likely to be getting richer. But, when GDP falls, it tends to mean the reverse is true.

As such, when GDP decreases to the extent that the country drops into a recession, it usually leads to higher unemployment, lower spending across the economy and a drop in business activity. In short, life gets harder for individuals and businesses alike.

Why is a recession bad news for the economy?

In the orthodox view of economics, recessions are bad news. This is because they usually lead to less spending in the economy by individuals and businesses.

With less money moving around and fewer purchases being made, firms will likely see declining sales. That means firms will have less money to spend on things like hiring new staff or investing in better technology.

If bad enough, firms may decide to lay off some of their existing staff or end up going out of business. This can have a downward spiral effect on the rest of the economy.

As companies lay more people off, unemployment rises. As fewer people have jobs, spending falls. And as spending falls, companies see their revenues decline and have to cut costs.

Just the possible indication of a recession can send a chill through the business community. Few firms want to commit to large investments if they expect demand is set to drop.

Lower spending also has an impact on the public finances. For example, with lower revenues, businesses will pay less tax, and with higher unemployment, individuals will also pay less tax.

Smaller tax revenues mean the government has to either cut back on spending (impose austerity measures) or borrow more money to fund public services.

When was the UK last in a recession?

The UK was last in a recession in late 2023, and it lasted exactly two quarters. GDP growth fell by 0.1% in the third quarter of the year and another 0.3% in the fourth.

Thankfully, the economy quickly recovered in the first quarter of 2024 when the economy grew by 0.7% and 0.6% in the second quarter.

The reason some people may feel like we are currently in a recession is because the economy has not grown very much since that economic recovery in 2024.

In 2025, the UK economy grew by just 0.1% in Q2 and 0.2% in Q3 and Q4. That incredibly slow growth means that while the economy is not shrinking, it is certainly not expanding very quickly.

With slow growth sweeping the country, commentators are regularly warning that the UK is on the brink of recession. Meanwhile, high inflation and unemployment are also stoking fears that we could enter an era of ‘stagflation’.

Although recessions are spoken about quite frequently, they are actually a relatively rare occurrence. Over the last 50 years, the UK has seen an average of just over one per decade, although these have varied widely in their depth, longevity, and cause.

For example, in the 21st century, the UK saw the ‘Great Recession’ in 2008 during the great financial crisis, which lasted five quarters and took years to recover from, and the Covid-19 recession in 2020 which lasted just two quarters.

The pensions triple lock is here to stay, meaning pension will rise in line with inflation in the new tax year, chancellor Jeremey Hunt said in his Autumn Statement this week.

In its 2019 manifesto the Conservative Party promised to uphold the triple lock, which ensures the state pension is increased each year by either the rate of inflation, the rise in average earnings or 2.5% – whichever is higher. With inflation rising rapidly, the future of triple lock has been questioned over the years.

On 17 November chancellor Jeremy Hunt confirmed the party was keeping its promise and increasing state pensions in line with last month’s inflation figure of 10.1%. But even this figure is outdated now; the latest data from the Office for National Statistics showed UK inflation is running at a 41-year high of 11.1%.

So what does this mean for pensioners, and how much will the state pension rise by?

Pensions triple lock reinstated from April 2023

Much to the dismay of many pensioners, in April of this year the government suspended the state pension triple lock due to the impact of the pandemic, and increased the state pension by 3.1% instead of 8.3%, the rate inflation was running at the time.

There had been reports the government was considering scrapping the triple lock because of the cost to public finances, but it has now been confirmed retirees are getting a 10.1% increase to their state pension from April, which translates into an £870 increase a year. That’s the biggest ever cash increase to the state pension. It takes the annual pension to £10,600.20.

Pension credit, for pensioners on the lowest incomes, will also increase by 10.1%, worth up to £1,470 for a couple and £960 for a single pensioner. Finally, pensioners will receive a one-off £300 cost of living payment.

But the increase won’t come into effect until April 2023, “so there is a tough winter ahead”, says Helen Morrissey, senior pensions analyst at Hargreaves Lansdown.

“The reinstatement of the triple lock after its suspension last year will cool some of the discussion around its long-term viability for a while, but with a review of state pension age due to be published soon, now is the time to carry out a comprehensive review of the state pension to ensure it best helps those who need it most, both now and into the future,” Morrissey added.

However, pension increases coupled with tax freezes on income tax and national insurance might push pensioners over these thresholds and result in them paying more tax. Inflation is still on the rise, too, which will mean pensioners will continue to feel a squeeze on their finances.

(John here: just before I let Dominic get started, I wanted to give you some advance notice – the MoneyWeek Wealth Summit is back this year! We’ll be letting you know all about it in more detail next week, but just wanted to let you know to keep an eye out. It’ll be a virtual event this year so you’ll be able to watch from the comfort of your own home, and we already have some cracking guests lined up – more news to come soon!)

The UK inflation rate has just hit an annual rate of 3.2%. That’s up from 2% in July. It’s the biggest monthly increase since they began measuring inflation in this way (ie, using the Consumer Prices Index – CPI) in 1997.

The main cause of the rise, says the Office for National Statistics (ONS), is higher food costs.

The Bank of England's target is 2%, so we are above that – again. Will it put up rates? Don’t be stupid: the situation is "temporary", says the ONS.

Yeah, right.

How prices and wages have changed since 1970

Today we consider real inflation. Not the official, bogus measures, but the real cost of living of 50 years ago compared to today. And in doing so we explain where to put your money in a world awash with printed money.

I’ve spent quite a bit of time compiling the data in the table below. Cast your eye over it; it shows the price of various items in 1970 compared to their price today.

I’ve used various different sources from across the net, from the ONS to broadsheets to blogs. I can’t list them all here (there isn’t space). The numbers are pretty sound (more details as I discuss below), though quibble-with-able.

The first and overriding observation is just how much everything has risen in price. It’s worth remembering that over the course of the 19th century in the UK, under a gold standard, prices fell. The same century saw the most explosive real wage growth in British history.

Under a fiat standard, the story is very different. Wages have risen, but, with a few exceptions, the cost of stuff has risen by much more.

Income tax, certainly at the higher end, was higher in 1970, but the overall tax burden and cost of government was lower. There were fewer stealth taxes, VAT was lower and so on. Government itself was much smaller, so it cost less.

As I am forever saying, your government is by far and away the most expensive purchase you will ever make in your life; more than half of everything you ever earn goes on it. And it’s not like it’s a voluntary or discretionary purchase: you have to pay for it, whether you like it or not. That’s social democracy – or democratic socialism, I’ve forgotten which we live under.

Nevertheless, taxation aside, we see that average wages have gone up by 20 times, give or take, over the last 50 years. However, there have been huge deflationary forces at work, which have driven down the cost of labour.

With more women entering the workforce, it has expanded and there has been more competition for jobs, which has driven down prices. Cheap immigrant or outsourced labour has also driven down wages to an enormous extent. Great if you’re an employer, not so great for the employees.

In short, there is no shortage of labour supply and, for the most part, we don’t use debt to buy labour. It is usually paid out of cash flow.

If you buy it with debt, it’s gone up an awful lot

With houses, however, there is a very different story. House prices have gone up more than 65 times over the same period. If wages had gone up by as much as house prices over the period, the average salary would be around £95,000. Imagine.

Then imagine if London wages had gone up by as much as London house prices: there isn’t enough space on the page to print the required number of zeros.

The key observations about these high prices are, first, that the supply of housing, thanks to planning laws, is more limited than the supply of labour; second, and perhaps more importantly, we use debt to buy houses. New debt entering the market – newly-created money in other words – has pushed up house prices in a way that could not have happened if this was a cash market.

A similar dynamic has been at play in the car market. Cars are obviously a lot better today than they were in the 1970s, but their supply is not finite in any meaningful way, and the effect of improved productivity should have had a deflationary effect.

Yet we see the average car – a Ford Cortina in 1970, a Ford Mondeo today – is 32 times more expensive, while the luxury car that is the Range Rover is over 40 times dearer. The reason? We use finance to buy cars; cheap debt has pushed up car prices too.

On the other hand, we don’t use finance to buy bread, milk or eggs, while the production techniques for each have dramatically improved. I don’t think battery farming even existed in 1970, certainly not like it does today, and cheap milk imports from Poland certainly didn’t exist either. So, with improved productivity, and neither debt nor limited supply to push up prices, basic, low end staple food costs have fallen relative to wages. With sound money they would have fallen by a lot more.

This same dynamic doesn’t apply to beer costs. Why? In recent times the extra cost of serving beer in a Covid-compliant manner has driven up prices, but the main villain has been increased alcohol duty. Cost of government, in other words. The actual cost of making beer, before all the add-ons, is quite low.

The same goes for fuel. Cheap oil is much harder to produce than it was in 1970, even if oil production techniques have improved, but around 70% of the cost of petrol at the pump is the cost of government (taxes and duties).

When we look at the cost of washing machines, we see the other big factor at play: globalisation. On the whole, we don’t use finance to buy such items. They have been prone to the deflationary force of improved productivity and globalisation; washing machine buyers benefit from China’s cheap labour and the export of its deflation, and so washing machine prices have “only” quadrupled.

The one thing that’s got cheaper – communication

And what about the cost of phone calls? Technically, a one-minute phone call to a landline costs 3p, but then again I can have a one hour video conference call with anyone anywhere in the world for free. If you want to see the deflationary forces of improved technology at work, look no further than the cost of communication. Even in a world of rampant money printing, it has gone to almost nothing. There’s the scalability of digital tech for you right there.

The way to play money printing? Own assets of which there is a finite supply, and which people use debt or cheap money (and that includes leverage) to buy. Houses, stocks, collectibles – all the stuff that’s been going up.

None of this will change until the money system changes.

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

Prices across the UK rose by 2% in the year to July, according to the latest figures from the Office for National Statistics (ONS), falling short of expectations. CPI was unchanged in July, compared with rises of 0.4% in July 2020.

Why has inflation dipped?

The lower reading was caused by a fall in prices in clothing and footwear, said the ONS, as retailers cut prices and offered summer sales. But this was partially offset by a rise in the price of second-hand cars, which fell last year: “Inflation fell back in July across a broad range of goods and services, including clothing... This was offset by a sharp rise in the price of second-hand cars,” says Jonathan Athow, ONS’ deputy national statistician.

Wednesday’s reading came after UK inflation had jumped to its highest level in three years last month with CPI hitting 2.5% thanks to an increase in the price of food, dining out, and clothing and footwear. So the dip is also related to the fact that price rises were exceptionally high last month.

Britain’s FTSE 100 stockmarket index fell 0.4% on the news, while the pound was 0.2% higher against the dollar at $1.376.

Is this a short-term dip?

Markets have been divided as to whether inflation, which has been rising across several major economies, is transitory or whether it should be a reason to worry and result in an earlier tightening of monetary policy.

“This is good news for those fretting about rising prices but potentially raises some questions about the strength of the UK economic recovery,” says Russ Mould, investment director at AJ Bell.

But Ian Warwick, managing partner at Deepbridge Capital, is less convinced that Wednesday’s lower than expected reading means inflation has cooled off: “While inflation may have slowed slightly to fall within the Bank of England’s target of 2% this does not mean that rates won’t pick up over the coming months,” he said.

Many early-stage businesses will be thriving in the recently reopened economy, but they will keep an eye out for any rise in interest rates as it could limit the amount they can borrow at a pivotal time, he adds.

This view is echoed by other experts: “Inflation stepped off the accelerator in July, but this doesn’t mean we’re set for a gentle ride, because it owes an enormous amount to an artificial bump in prices a year earlier. The underlying pressure on prices, particularly from soaring petrol and second-hand car prices, mean it’s set to pick up speed again soon, and may well hit 4% by the end of the year,” warns Sarah Coles, personal finance analyst at Hargreaves Lansdown.