The UK should brace for higher inflation and higher-for-longer interest rates for the rest of the year, according to a leading independent financial advisory.
Data earlier in the week showed that UK inflation held at 3% in February, reflecting the period just before a renewed surge in world energy prices tied to escalating tensions involving Iran.
“Inflation is now, by almost all estimates, turning higher again,” warned James Green, regional director of deVere Group with experience across 18 regulated financial entities.
“I fear that many households, businesses and investors could be underestimating the scale and speed of what’s coming.
“Energy prices are rising sharply, and that feeds directly into every part of the economy. Households, businesses and investors are all exposed.”
The latest data captures a moment before the energy shock intensified. Since then, oil and gas prices have moved decisively higher, while shipping routes and supply chains face renewed disruption.
The result is a fresh wave of cost pressures building across the UK economy.
“This is a broad-based inflation impulse driven by energy, and it’ll push up the cost of transport, food, manufacturing and daily essentials,” said Green.
“Households should expect bills to rise again. Businesses should expect margins to come under pressure.”
Expectations for interest rate cuts are already being repriced. Financial markets are pushing out the timing of any meaningful easing as inflation risks rebuild.
James Green added that, “interest rates will, we expect, stay higher-for-longer. The idea of rapid cuts this year is becoming increasingly unlikely.
“The Bank of England will be unlikely to ease policy while inflation is accelerating again. Doing so would risk losing control of price stability.”
For households, the consequences are immediate.
“Mortgage costs will remain elevated, refinancing becomes more expensive, and disposable income is squeezed further as living costs rise,” Green warned.
“It’s a direct hit on household finances. Borrowing remains costly, and inflation erodes purchasing power at the same time.
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“People need to take action now by reducing exposure to variable-rate debt, securing fixed terms where possible and strengthening savings buffers.”
Businesses face a similarly challenging environment. Rising input costs, higher financing expenses and weaker demand create a difficult operating backdrop.
“Business leaders need to prioritise cost control, protect margins and ensure they have the liquidity to withstand a more volatile period.”
“In this environment, investors need to focus on assets that can perform under inflationary pressure. Commodities, energy-linked investments and companies with strong pricing power become far more important.”
Bond markets are also vulnerable if inflation proves more persistent, with yields likely to remain elevated and price volatility increasing.
Currency markets may reflect diverging policy paths as economies respond differently to the same shock.
Geopolitical developments remain central to the outlook. A prolonged conflict would sustain pressure on energy markets and extend the inflation cycle.
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