Inflation increased to 2.3% in October, heaping pressure on the Bank of England to delay further interest rate cuts until next year.
Figures released by the Office for National Statistics (ONS) on Wednesday showed that a rise in energy bills pushed up the consumer prices index (CPI), reversing a downward trend this year in inflation, which was 1.7% in September.
The ONS said higher gas and electricity prices were offset by lower oil prices, which reduced the transport and raw materials costs of manufacturing businesses. Falls in the price of theatre and live music tickets also helped to limit the rise in inflation.
The October figure was slightly above the 2.2% City economists had expected
Retailers have said that measures announced in Labour’s budget last month will ultimately lead to higher prices, and the tax rises have already hit consumer confidence.
Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said the figures confirmed “a disappointing resurgence in inflation” as the benefits of falling energy costs last year reversed to become a headwind.
“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.”
Policymakers at the Bank, who are tasked with keeping inflation near to a 2% target, have cut interest rates twice to 4.75%, but a further reduction at a meeting in December is likely to be put off until at least February.
Thiru said October’s marked rise in inflation “makes a December interest rate cut more unlikely”.
Financial markets now see the probability of a rate cut next month at about 16%.
“Concerns over renewed price pressures from the budget and international uncertainty may draw a more reluctant approach among rate setters to future policy loosening,” he added.
Economists said the central bank would have a more difficult task deciding when to cut the cost of borrowing over the next few months after a surprise increase in services inflation and core inflation, which strips out volatile elements such as food and fuel.
Core inflation increased from 3.2% to 3.3%, confounding a consensus forecast for a small fall to 3.1%, and services inflation rose from 4.9% to 5%.
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Ruth Gregory, the deputy chief UK economist at the consultancy Capital Economics, said much of this overshoot was due to a sharp jump in airfares inflation, reflecting the biggest rise in ticket prices in October since monthly collection began in 2001.
James Smith, research director at the Resolution Foundation, said the rise in core inflation, services inflation and energy prices amounted to “a triple dose of bad news”.
“After recent lower-than-expected price rises, today’s data is a reminder that the long tail of elevated inflation from the cost-of-living crisis is still in the economy,” he said.
Darren Jones, the chief secretary to the Treasury, said: “We know that families across Britain are still struggling with the cost of living. That is why the budget last month focused on fixing the foundation of our economy so we can deliver change. That includes boosting the national minimum wage, freezing fuel duty and protecting working people’s payslips from higher taxes.”
Rising prices have eaten into consumer spending power over the last three years, and by more in the UK than other big economies. Figures have previously shown that, from January 2021 to May 2024, UK consumer prices increased by 22.8% in total, compared with 20.9% in Germany, 18.8% in the US and 16.6% in France.
Mel Stride, the shadow chancellor, said it was important that the government kept inflation low. “What is worrying about today’s announcement is that inflation is running ahead of expectations and official forecasts state these figures are not expected to improve. Labour’s budget will push up inflation and mortgage rates.”
Source: theguardian.com
