Andrew Wishart, economist at Berenberg Bank, predicts that sustained inflation and pay growth will stop the MPC cutting below 4.25pc next year.
He said: “The stickier parts of inflation already are the sectors most reliant on low-wage labour. Pay growth is now being driven by those towards the bottom of the pay distribution, and given another 6.7pc increase in the minimum wage from April and the NI increase, that is only going to continue.”
Given a rise in spending by households and by the Government, “firms will have the ability to pass on a fair chunk of that cost in prices”.
Mr Wishart said: “Against that backdrop I cannot see the Bank of England continuing to cut throughout the whole of next year.”
Benjamin Nabarro, economist at Citi, said the obvious time for companies to pass on these costs was in the coming month.
He said: “For the retail sector in particular, recent survey data has suggested a modest improvement in pricing power – which suggests recent changes in employer NICs are likely to be passed through at least in part,” he said, adding that there are also pressures from global shipping costs and the threat of US tariffs.
“We suspect firms are likely to try and front load these increases in and around the conventional seasonal volatility into Christmas.”
David Hollingworth, at mortgage brokerage L&C, said the rise in inflation “could push fixed rates up” further.
He said: “We have seen a huge amount of repricing, and that is ongoing – lenders are pulling and changing deals almost weekly at the moment. We are still in a state of flux. The market is still moving.”
“The Budget and the expectation that will mean interest rates will remain higher for longer because of … slightly higher inflation expectations.”