Emeritus Professor Joe Nellis is Head of Economic Research at MHA, the accountancy and advisory firm.

Rising consumer confidence, an unexpected rise in payrolled employees resulting in a fall in unemployment, and an upbeat forecast from the IMF may have offered the UK Government a glimmer of hope as we approach the Autumn Budget.

But a rise in inflation to 3.5% in September provides a harsh reminder that the UK’s inflation problem is still hanging over the economy.

Inflationary pressures are set to intensify over the winter months as the cost of oil and gas pushes up domestic energy prices, leaving the economy facing an increasingly uncomfortable combination of slower growth and stubborn inflation in 2027.

The Monetary Policy Committee is now almost certain to raise interest rates when it next meets on 5 November.

At the moment, inflation continues to be largely driven by external factors, which domestic monetary policy cannot combat. Yet the fear is that higher energy prices will spark second-round effects linked to wages, services and broader inflation expectations, pushing headline inflation to above 4% over the winter period. Businesses will therefore face higher transport, energy and employment costs and will be under pressure to pass some or all of these on to hard-pressed consumers.

With growth remaining subdued and investment, dynamism, and innovation desperately needed in the economy, a rise in interest rates will only undermine efforts to change this.

It raises questions about the mandate of the Bank of England. Unlike the US Federal Reserve, the Bank’s primary monetary policy objective is price stability, with little regard to the ramifications for the wider economy. Is it time that the Government reconsiders this narrow remit?

If the Bank were to take greater account of growth and employment alongside inflation, interest rates could be set at a level that better supports the overall health of the economy. Critics would argue that broadening the Bank's mandate risks undermining its inflation-fighting credibility.

However, in an era of persistent supply-side shocks, weak productivity growth and low growth, it may be necessary for the Bank to adapt if it is to remain relevant.

For the Chancellor, rising inflation and potential interest rate hikes come at a bad time.

The Autumn Budget must confront an economy struggling to generate sustainable growth while households continue to face a squeeze on living standards.

Higher inflation risks keeping interest rates elevated, increasing government borrowing costs and further restricting fiscal room for manoeuvre.

With interest rates likely to rise further in 2027, the Chancellor must use the Budget to support investment, productivity and growth rather than allow the economy's fragile momentum to fade.