High inflation is at risk of becoming entrenched in the UK, due to a combination of disappointing productivity and persistent wage pressures.
Global financial advisory giant deVere Group expects the Bank of England to hold interest rates until at least the middle of 2026 – and says the next move could even be upward.
This warning from the chief executive comes as the annual inflation rate was unchanged in September, coming in at 3.8% for the third consecutive month, while core inflation sits near 3.5%.
“The latest inflation data should set alarm bells ringing,” says Nigel Green, CEO of deVere Group.
“These are not figures that give policymakers breathing space. They’re a warning that inflationary pressures are proving far more resistant than hoped.”
He continues: “The underlying drivers are structural. The UK’s productivity growth remains anaemic, while wage increases in many sectors continue to outpace output.
“When wages rise faster than productivity, prices follow. This is how inflation becomes embedded – not as a short-term shock, but as a feature of the system.”
Nigel Green says markets are underestimating how long rates will stay high.
“Investors still appear to be betting on rate cuts in the coming months, which we believe is misplaced.
“The Bank of England cannot credibly loosen policy while inflation sits almost double its 2% target.
“The reality is that rates are likely to remain at current levels until well into 2026. There’s even a non-trivial chance that the next move will be upward rather than down.”
He continues: “If the Bank cuts prematurely, it would invite a new wave of inflation and erode public confidence in its commitment to price stability.
“Inflation expectations would shift higher, and that would be even harder to reverse. Once that happens, it’s not just monetary tightening that’s needed; it’s a credibility rebuild.”
Nigel Green also highlights that weak growth offers little comfort.
“GDP expanded by just 0.1% month-on-month in August. That’s hardly the kind of resilience that should embolden the central bank.
“It shows an economy still struggling for momentum – but an economy where price pressures have not yet subsided. The combination is toxic: slow growth and sticky inflation is the definition of a policy trap.”
He says the coming fiscal announcements will further shape the Bank’s thinking.
“The Autumn Budget later this month could introduce tax rises or spending restraint, both of which would help cool inflation. But if the Chancellor opts for measures that boost demand, the central bank will have no choice but to stay on hold for longer. Fiscal and monetary policy are now locked in a delicate balancing act.”
According to Nigel Green, the UK is approaching a critical moment for long-term inflation control.
“If inflation is allowed to harden, it risks becoming a self-perpetuating cycle. Businesses adjust prices upwards, employees negotiate higher pay, and expectations embed. That’s the path that led to inflationary stagnation in the 1970s. It took years to unwind then, and it could again.”
He warns that complacency would be costly. “Investors, consumers, and policymakers cannot simply assume inflation will drift back to target.
“This assumption has already proved wrong for months. The danger now is that the Bank of England hesitates too soon, misreads the persistence of inflation, and loses control of the narrative.”
Nigel Green concludes: “We believe that the UK is entering a period where monetary policy will remain restrictive for far longer than most anticipate.
“The Bank of England could be expected to hold rates steady well into 2026 – and there’s a real possibility that its next move will not be a cut, but a hike.”
