UK inflation accelerated more than forecast to well above the 2 per cent target, a pickup that keeps Bank of England officials on track for “gradual” interest-rate cuts.
Consumer price inflation rose to 2.3 per cent in October from 1.7 per cent in September after a jump in energy bills, the Office for National Statistics said on Wednesday. It was above the 2.2 per cent forecast by the BOE and private-sector economists.
Services inflation – which is being monitored closely by the BOE for signs of domestic pressures – remained elevated at 5 per cent, in line with BOE forecasts and up from 4.9 per cent in September.
The figures keep the BOE on course for a cautious approach to reversing the 14 back-to-back interest rate hikes amid growing inflationary threats at home and abroad.
The pound jumped after the report to trade 0.3 per cent stronger at $1.2714, rebounding further from a six-month low last week.
It marked the biggest pickup in the headline inflation rate between months since October 2022. The BOE expects the rate to reach almost 3 per cent by the third quarter of next year as an expansionary budget adds to the inflationary impulse caused by last year’s fall in energy prices falling out of the annual calculations.
The headline inflation rate was pushed up by a 10 per cent rise in the UK’s energy price cap for households in October, compared to a drop a year earlier.
While BOE policymakers cut rates for only the second time earlier this month, they signalled a “gradual” approach to future reductions. On Tuesday, Governor Andrew Bailey pointed to sticky services inflation and a “number of risks out there.”
The UK central bank expects inflation to climb back up to almost 3 per cent next year, pushed higher by weaker energy prices falling out of the annual calculations and the Labour government’s first budget.
The central bank believes Chancellor Rachel Reeves’ fiscal plans may fuel inflation by increasing costs for businesses and boosting borrowing to pay for public investment.
An uncertain global backdrop is another reason for caution ahead of a potential trade war sparked by the return of Donald Trump to the White House. While a tit-for-tat tariffs skirmish may boost prices, it could also prove disinflationary if the global economy cools and trade is diverted. – Bloomberg
