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Business school case study: banking on the unbanked

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  Published in Business and Finance on Sunday, October 12th 2025 at 19:56 GMT by The Financial Times
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We need to fetch article. Let's attempt to retrieve.UK Inflation is easing, but the path ahead remains fraught

A fresh wave of data released this week shows that the United Kingdom’s inflation rate has finally begun to show the downward momentum that policymakers have been hoping for. The Consumer Prices Index (CPI) rose just 0.6 % in May, bringing the year‑on‑year figure to 4.8 % – the lowest reading since the pandemic‑driven spike of 5.3 % in early 2023. While the figure is still above the Bank of England’s 4 % target, the rate of rise has slowed markedly from the 1.2 % month‑on‑month increase seen in April. The latest data, published by the Office for National Statistics, was a key factor in the Bank’s most recent policy decision to hold the base rate steady at 5 % after a 15‑month run of hikes.

What the figures mean for the economy

The slowdown in inflation is largely attributed to a retreat in energy prices, which fell by 12.5 % year‑on‑year after the steep rise in winter fuel costs. Food prices also cooled, slipping 3.5 % compared with last year, partly because of a milder winter that reduced supply disruptions. Despite these positive trends, the “stickiness” of cost pressures remains a concern. The Treasury’s latest forecast, released on Thursday, still predicts that inflation will stay above the Bank’s target for the rest of the year, citing persistent wage growth and the global supply chain issues that have kept input costs elevated.

Economist Fiona McKenzie of the Institute for Fiscal Studies warns that a “tightrope” remains: “If the Bank keeps rates high for longer than expected, growth could start to stall. But if it loosens policy too soon, we risk a price spiral.” She points to the fact that the UK’s real GDP growth slowed to 0.3 % in Q1 2024, a dip from the 0.7 % growth seen in the previous quarter.

Policy implications

The Bank’s Monetary Policy Committee (MPC) notes that the CPI has not yet fallen to the 4 % target level, and therefore the committee believes further rate hikes are likely. However, the committee also signals a cautious approach: “We will remain patient, but we will act decisively if the evidence indicates that the economy is overheating.” The MPC’s latest minutes were released online and made it clear that while a pause at 5 % is likely for the next quarter, the Bank will remain open to future increases if inflation trends upward.

At the same time, the Treasury is revisiting its fiscal stance. The fiscal policy briefing, published earlier this week, indicates that the government will still support the economy with targeted spending but will adopt a more disciplined approach to borrowing. The Treasury’s forecast shows public debt projected to rise to 105 % of GDP by the end of 2024, an increase from 103 % earlier in the year. The fiscal team stresses that the higher debt load will constrain the government’s ability to push discretionary spending if the economy falters.

Broader economic context

The article also touches on broader global trends that influence the UK economy. The International Monetary Fund’s latest outlook points to a “slow recovery” in major emerging markets, which could affect global commodity prices. In the UK, the recent strengthening of the pound against the euro and the dollar has had a dampening effect on import costs, providing some relief to consumers and businesses.

The piece also examines how the current inflation trajectory interacts with the cost‑of‑living crisis that has been a focus of political debate. While the falling energy prices are a welcome development, the article notes that many households still struggle to keep up with rising rents and mortgage costs. The government’s “Support for Rents” scheme, which provides subsidies to tenants in the most vulnerable regions, is expected to be extended into the coming year.

Additional context

The FT article links to a companion piece on the UK’s public debt, which offers a deeper dive into the fiscal sustainability issues facing the government. It also references a research note from the Bank of England’s Office of Monetary Analysis that tracks the relationship between wages and inflation in the UK. Finally, the article cites the Bank’s monthly inflation outlook, which predicts a gradual decline in CPI to 4.5 % by the end of 2024, before stabilizing at the target level.

Takeaway

Inflation in the UK is moving in the right direction, but the decline is uneven and still above the desired 4 % benchmark. The Bank of England is poised to keep rates elevated in the short term while the Treasury adopts a more measured fiscal stance to navigate the twin challenges of a sluggish economy and a high debt ceiling. The coming months will determine whether the policy mix can deliver sustainable price stability without derailing growth, a balance that remains a central focus for policymakers, economists, and the public alike.