UK inflation rose to 2.9% in July, increasing uncertainty around funding costs, development viability and exit demand across the specialist property finance market.
The Consumer Prices Index moved up from 2.6% in June and further above the Bank of England’s 2% target, according to the Office for National Statistics.
The increase followed a 13% rise in Ofgem’s household energy price cap from 1 July, reflecting higher wholesale gas prices linked to the continuing conflict in the Middle East.
Bank Rate remained at 3.75% after the Monetary Policy Committee votes by six to three to hold it in July. The three dissenting members favour an increase to 4%, highlighting the possibility that the next movement in rates is not necessarily downwards.
FUNDING COSTS REMAIN UNCERTAIN
Bank Rate does not directly determine the price of bridging and development finance, but expectations for inflation and monetary policy influence swap rates, gilt yields and the wider cost of lender funding.
Persistent inflation can affect pricing and liquidity across specialist lending, while higher household costs and mortgage rates may weaken demand for completed homes.
For developers, the combination creates pressure at both ends of a project. Construction and energy costs remain elevated while prospective purchasers face tighter affordability assessments and more expensive mortgage finance.
Borrowers approaching the end of a bridging or development facility may also find that their exit takes longer if sales rates slow or mainstream refinancing remains constrained.
A Reuters poll conducted before the inflation figures finds that 56 of 64 economists expect Bank Rate to remain at 3.75% for the remainder of 2026.
ENERGY PRICES DRIVE PRESSURE
The Ofgem price cap rises by 13% for a typical dual-fuel household paying by direct debit between July and September. Customers on fixed tariffs are unaffected.
The National Institute of Economic and Social Research says: “UK price pressures are renewing as households are hit again by the crisis in the Middle East, feeling the effects of the 13% increase in the Ofgem energy price cap, compounded by heightened motor fuel prices.
“The Government’s ‘Great British Summer Savings’ VAT reduction may have helped keep costs down for families as the summer holiday kicked off; however, we expect this has minimal impact on dampening inflation.
“Internationally, the Memorandum of Understanding between the US and Iran expiring and continued escalation is doing little to temper the near-term path of oil and inflation.
“While we expect the Bank to hold rates next month, the rate at which inflation continues to rise may increase the risk of them acting later in the year.”
PROPERTY AFFORDABILITY CONCERNS
The Bank must balance renewed price pressure against evidence of a softer labour market and slowing private-sector wage growth. Its next Bank Rate announcement is due on 17 September.
Nathan Emerson, Chief Executive Officer of Propertymark, says: “Today’s news may bring a renewed level of concern to many individuals and families, especially over the coming months regarding household outgoings.
“Significant fiscal uncertainty, both in the UK and globally, including concerns on energy prices over coming months, is potentially likely to keep inflation rates above pre-2021 levels for now, continuing to potentially impact affordability for existing homeowners and prospective buyers as the year progresses.”
