U.K. inflation rose sharply to 2.3% in October, significantly exceeding economists’ expectations, according to data released by the British Office for National Statistics on Wednesday.
Gatekeepers News reports that this represents an increase from September’s inflation rate of 1.7% and is above the anticipated 2.2% forecasted by analysts surveyed by Reuters.
The latest inflation figure places it above the Bank of England’s target of 2%, which may impact the likelihood of a final interest rate cut this year.
Following the release of this data, the British pound appreciated slightly, trading 0.1% higher at $1.2692 at 8:03 a.m. London time, and gained 0.4% against the euro, reaching 1.20 euros.
Core inflation, which excludes volatile components such as energy, food, alcohol, and tobacco, increased to 3.3% in October, up from 3.2% in September. This rise was partially attributed to an increase in the energy price cap implemented in October, expected to drive higher energy price inflation as winter approaches.
Also, price increases in the dominant services sector rose modestly to 5.0% last month from 4.9% in September, marking the lowest rate observed in more than two years.
“Inflation should drift gradually higher from here with rising energy bills, the impact of the Budget and global trade frictions likely to keep the headline rate hovering above the Bank of England’s 2% target until well into 2025,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.
The upcoming interest rate decision by the Bank of England on December 19 will be influenced by this data, although another inflation report is scheduled for release before the meeting. Earlier this month, the central bank cut rates by 25 basis points but indicated that any future cuts would be gradual due to ongoing uncertainties in the economic landscape. As of Wednesday morning, market forecasts reflected only a 14% likelihood of an additional quarter-point rate cut before the end of the year.
Lindsay James, an investment strategist at Quilter Investors, noted that the recent inflation figures have made it “increasingly likely” that the Bank of England will maintain current rates as the year concludes.
“This is a clear reminder that short-term inflationary pulses may return, potentially caused by factors such as obstacles to trade, labour market tightness, taxation and volatility in food and energy prices,” James said.
“Whether October’s uptick in inflation proves to be just a blip remains to be seen, however, it seems more likely that the Bank may err on the side of caution in coming months as a growing list of inflationary risks emerges on the horizon,” she added.
U.K. borrowing costs rose slightly on Wednesday, with 10-year gilt yields trading at 4.491%.
