This Wednesday will mark the longest day of the year and not long after the sun comes up the Office for National Statistics (ONS) will publish its latest cost of living bulletin. To say the data is eagerly awaited is an understatement. There is unlikely to be a more significant piece of official data released in the current parliament.

The reason is simple. Despite raising interest rates 12 times since December 2021 in an attempt to quell upward price pressures, inflation is proving harder to shift than the Bank of England imagined.

Threadneedle Street’s monetary policy committee (MPC) will meet to decide what to do about interest rates on Thursday. For the past few months, inflation has come in higher than expected and another disappointing number would rattle financial markets.

The Bank will not pay much attention to the headline rate of inflation as measured by the consumer prices index (CPI), which currently stands at 8.7%. Instead, the two numbers to look out for are service-sector inflation and CPI inflation excluding energy, food, tobacco and alcohol (core inflation). Both are seen as indicators of price pressures being generated by the domestic economy and therefore not distorted by global factors or government decisions.

When the MPC last met in early May, it raised official borrowing costs by a quarter of a percentage point to 4.5% and there was some hope that the peak of the interest-rate cycle had either arrived or was close.

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Such hopes have since been dashed. In the last published set of inflation figures, service sector inflation rose from 6.6% to 6.9% while core inflation jumped from 6.2% to 6.8%. Since the release of the latest labour market data last week showing a pickup in annual pay growth, the markets have been betting on the peak in rates being 5.75% not 4.5%. Mortgage rates soared as lenders re-priced their home loans. Government borrowing costs rose to levels not seen since the global financial crisis 15 years ago, exceeding levels seen during Liz Truss’s brief and turbulent leadership.

Any fresh evidence that inflation is proving “sticky” will put immediate pressure on the Bank to toughen up its stance. George Buckley, a Nomura economist, thinks the MPC will be split three ways, with six members voting for a 0.25-percentage-point rise, two opting for no change and one plumping for a 0.5-percentage-point increase. A higher than expected inflation figure would increase the chances of a half-point jump.

As a result, Wednesday is crunch time. It is crunch time for Rishi Sunak and Jeremy Hunt, who want voters to judge the government by the progress it makes in tackling inflation and calming the markets. Halving inflation during 2023 was one of the five new year pledges made by the prime minister in January, but the decline so far has been slower than expected. To have any hope of winning the next election, Sunak and Hunt need interest rates to come down fast.

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It is crunch time for the Bank, which has the job of hitting the government’s 2% inflation target and is now facing mounting criticism. So far the brickbats have tended to come from those who say the Bank was too slow to respond to price pressures and has allowed inflation to become embedded. But there are also those who say because interest rates work with a lag, the Bank risks driving Britain into a deep recession.

Wednesday is also crunch time for the UK’s housing market and the millions of people paying mortgages. The ONS says 57% of those who took out fixed rate home loans did so when rates were below 2%. Those whose deals expire in the coming months will be refinancing at three times those rates.

And because mortgage rates affect demand for housing and consumer confidence, Wednesday is crunch time for the economy. Britain just about avoided sliding into recession over the winter. There is no guarantee it will continue to do so.

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