The Bank of England is expected to hold interest rates at 4% this week as inflation continues to run stubbornly above target and policymakers signal a more cautious stance on further cuts.

Figures due on Wednesday are forecast to show consumer price inflation flat at 3.8% in the year to August, nearly double the Bank’s 2% goal.

Officials believe inflation will peak at 4% in September while analysts at HSBC suggest it could climb to 4.2%.

The persistence of high food prices, rising household bills and April’s £25 billion payroll tax increase on businesses have created what economists describe as an “inflation hump”.

RUNNING HOT

This has left the UK running hotter than the eurozone, where inflation averages 2.1%, and the United States, where tariffs have pushed it up to 2.9%.

The Bank has reduced rates five times from a peak of 5.25% since August last year.

But members of the nine-strong monetary policy committee (MPC) have stressed they will take a “cautious and gradual” approach to further easing.

The Times reports that Citi economist Michel Nies noted: “The burden of proof now lies with those on the committee that are in favour of looser rates.”

The committee will also weigh fresh labour market data, due Tuesday, for signs that wage pressures are easing. Businesses continue to adjust to this year’s higher national living wage and national insurance contributions.

QUANTITATIVE TIGHTENING

Attention will also fall on the Bank’s annual decision on the pace of quantitative tightening. Gilt sales of £100 billion last year are expected to be scaled back to £70 billion–£80 billion in light of mounting concerns over long-term borrowing costs, which hit a 27-year high in August.

Andrew Bailey, the Bank’s governor, told MPs this month there was “considerably more doubt” over the timing of future cuts.

His caution suggests interest rates could remain at 4% for the rest of the year, even as the US Federal Reserve is expected to move lower next week.