Britain’s economy grew 0.4 per cent in the second quarter of 2026, several times the pace the Bank of England had pencilled in three months earlier. That is the good news, and it is behind us. The next ten weeks decide whether it holds. Ofgem must publish a new energy price cap by 26 August. The Monetary Policy Committee meets on 17 September with three of its nine members voting to put rates up, not down. A Budget lands on 28 October, with ten-year gilt yields near 5 per cent. Households have absorbed one energy shock; whether they absorb a second, and what the Treasury does about the bill, is the story of the autumn.

Inflation is falling now, and the Bank expects it to turn

Consumer price Inflation was 2.6 per cent in the year to June 2026, down from 2.8 per cent in May, according to the Office for National Statistics. Core inflation, stripping out energy, food, alcohol and tobacco, held at 2.6 per cent, while services inflation — the gauge the MPC watches most closely for domestically generated price pressure — eased to 3.6 per cent.

The Bank does not expect that to last. Governor Andrew Bailey told July’s press conference that inflation should peak “a little above 3 per cent” by the end of this year as higher energy prices work through, before falling back towards the 2 per cent target. Its April report also published a harsher scenario in which a deeper energy shock pushes inflation above 6 per cent in early 2027. Not a forecast, but it explains the caution.

Why the 26 August energy decision matters more than the last GDP print

Ofgem raised the default Tariff cap by 13 per cent from 1 July, blaming higher wholesale gas prices caused by conflict in the Middle East; wholesale costs rose 28 per cent in three months. Electricity rose about 5 per cent; gas rose 24 per cent. The cap for a typical dual-fuel direct debit household stands at £1,663 a year on revised consumption assumptions, against £1,641 before; the regulator also cut assumed usage, so the headline understates what many gas-heated homes pay.

Ofgem must publish October-to-December rates by 26 August. Because the cap feeds straight into CPI, that announcement will shape the inflation path into 2027 more than any activity data. Pulling the other way, government funding of the domestic Renewables Obligation share and the end of the ECO4 scheme were expected to take about £150 off typical annual bills from April 2026.

A split committee, and a market pricing nothing

Bank Rate has been 3.75 per cent since before the summer. At the meeting ending 29 July the MPC voted 6-3 to hold, but the three dissenters — Megan Greene, Catherine Mann and Huw Pill — wanted an increase to 4 per cent, not a cut. After a period of easing, that makes the next move genuinely two-sided.

Pay data gives the doves their argument: private sector regular pay growth eased to 2.9 per cent in the three months to May, and the Bank’s agents report 2026 settlements averaging 3.5 per cent, down from 4 per cent. Respondents to the Bank’s Market Participants survey expect no change over the year ahead; the next decision is 17 September.

Gilts near 5 per cent set the Budget arithmetic

The ten-year gilt Yield was around 5.04 per cent on 14 August, having pushed back above 5 per cent as oil prices rose. Gilt yields set the government’s marginal borrowing cost and anchor the swap rates lenders use to price fixed-rate mortgages. Higher yields make new borrowing dearer and shrink a chancellor’s room to manoeuvre.

The public finances are drifting, not breaking. Public sector net borrowing was £16.0bn in June and £57.6bn in the financial year to date, £2.7bn above the Office for Budget Responsibility’s profile, with Debt at 94.9 per cent of GDP.

What is confirmed about the Budget — and what is not

Confirmed: the Budget falls on 28 October 2026, per the Chancellor’s letter to the Treasury Select Committee. The fiscal rules are unchanged in substance — the current budget in surplus by 2029-30, debt falling as a share of the economy by then — and the government has said it will not raise the headline rates of income tax, national insurance or VAT.

Also confirmed, because it is already law: income tax and national insurance thresholds stay frozen to April 2031, a fiscal-drag measure forecast to raise around £23bn by 2030-31. Tax rates on property and savings income rise two points from April 2027, and a council tax Surcharge hits homes worth £2m or more from April 2028.

Everything else is speculation. Capital Gains Tax alignment with income tax rates, a land or property value tax and one-off Wealth levies are all being canvassed; none has been announced. Headroom against the rules was reported at just over £20bn in March, and debt interest and new spending commitments have eaten into it since.

Jobs are softening while sentiment improves

The labour market is the weak link. Unemployment was 4.9 per cent in the three months to May and payrolled employees fell by 85,000 over the year. Regular pay grew 3.4 per cent — barely 0.4 per cent after CPI inflation.

Surveys point the other way. The composite purchasing managers’ index rebounded to 52.2 in July from 49.3, with output price inflation at a five-month low, though firms kept cutting staff. GfK’s consumer confidence index jumped six points to -17, its largest monthly rise since November 2023. Manufacturers stayed gloomier: the CBI’s July survey showed a net -30 per cent expecting output to fall.

What it means for equities, gilts and sterling

The FTSE 100 closed at 10,750 on 14 August, up 17 per cent over twelve months — strength that owes more to global Earnings and energy exposure than to domestic demand. Sterling traded near $1.35, little changed over the year.

For gilt investors, yields near 5 per cent offer real income but carry event risk into October. For borrowers the message is blunter: fixed Mortgage pricing follows swap rates, not the Bank Rate headline. For companies, softer hiring and easing output prices point to Margin pressure rather than pricing power.

Three dates that will settle the autumn

Britain has taken an energy shock and kept growing, with inflation lower and confidence higher than the spring consensus expected. The vulnerabilities are as clear: a labour market shedding jobs, borrowing costs that punish fiscal slippage, and an inflation path the Bank expects to worsen first.