Inflation is expected to rise for the first time this year, a blow to the Bank of England

UK inflation is expected to rise for the first time this year according to new data that could put the brakes on any further interest rate cuts by Bank of England policymakers next month.

City analysts believe figures published by the Office for National Statistics (ONS) on Wednesday will show inflation has risen to 2.3 per cent.

Inflation has remained at 2 percent since May and gave the Bank's monetary policy committee the confidence to cut the base rate to 5 percent, a quarter-point drop, in early August after a year of high rates to curb inflation.

But it has since struck a cautious tone about further cuts, and many economists believe rates will remain unchanged when the committee meets again in September.

Dan Hanson, chief UK economist at Bloomberg Economics, said: “The resurgence of headline inflation in the second half of the year will create a challenging environment for the BOE.

“While the increase can be easily explained by base effects associated with energy prices, the prospect of easing monetary policy when inflation is rising is not favorable.”

Catherine Mann, the Bank of England's rate-setter and an external member of the Bank's monetary policy committee, has said the UK should not be “lured” into thinking inflation will remain low over the next year.

Ms Mann said she was concerned that inflation could rise again soon, even though the headline gauge fell to the Bank's 2 percent target earlier this year.

Talking to him Financial timeMs. Mann noted that surveys indicate that businesses expect to raise wages and prices. She said that indicates that she and other rate-setters “face a problem for the coming year.”

Ms Mann, a former chief economist at the OECD, was one of four policymakers who voted to leave rates unchanged at the last meeting, at 5.25 per cent, the highest level in 16 years.

“Inflation has come down but… we should not be seduced by headline inflation because of the role of energy and external factors that influence it,” he said.

He was referring to a recent drop in energy prices, which some economists believe has masked persistent upward inflationary pressures elsewhere in the economy.

One of those pressures is wages. Some members of the Monetary Policy Committee still believe that strong wage growth will take longer to subside, meaning that service price inflation will also remain high.

He said that in the last round of annual pay settlements, “some people at the lower levels got a substantial increase, rightly so, but those above them didn't. Which means that next year they will.”

He added: “There is an upward process both in the wage-setting process and in the pricing process and… it may well be structural, having been created during this period of very high inflation over the last two years.”

“That increase in pressure will take a long time to disappear.”

He said it could take “several years” for wages to meet workers’ expectations, adding: “There are a lot of vacancies, there is a lot of desire to employ people and there don’t seem to be any workers available.”

Ms. Mann spoke ahead of several economic announcements in mid-August, including an update on jobs and wages, and on the headline inflation rate.

He also suggested that recent volatility in global stock markets has the potential to add upward pressure on inflation and that the Bank may be tempted to keep rates higher for longer as a result.

Elizabeth Martins, UK economist at HSBC, said: “We don’t see any urgent reason for a further rate cut, but the Bank of England is clearly looking at this data and if it shows they are right to be cool to inflationary pressures in the services sector then that question will be opened up. The message from the Bank of England was ‘we will not rush into the next cut’.”