In a surprise move, United Kingdom inflation accelerated to 2.3 per cent in October, exceeding market expectations and potentially halting the Bank of England’s plans for a December interest rate cut.
According to data released by the British Office for National Statistics on Wednesday, the sharp increase from September’s 1.7% rate surpassed the 2.2% forecast predicted by economists polled by Reuters.
This uptick pushes inflation above the Bank of England’s 2 per cent target, casting doubt on the likelihood of a final interest rate cut this year.
The news prompted a marginal increase in the value of the British pound, which rose 0.1 per cent to $1.2692 and 0.4 per cent to 1.20 euros against the euro at 8:03 a.m. London time.
Further details from the UK’s October inflation report revealed that core inflation, excluding energy, food, alcohol, and tobacco, edged up to 3.3 per cent from 3.2 per cent in September.
This modest increase was largely anticipated due to the regulator-set energy price cap, which took effect in October and is expected to drive higher energy price inflation during the winter months.
The services sector, which dominates the UK economy, saw moderate price rises, increasing to 5.0% last month from 4.9% in September. Although this marks a slight increase, it also represents the lowest rate in over two years.
Investment strategist at Quilter Investors, Lindsay James, stated the Wednesday inflation print had made it “increasingly likely” that the British central bank will close out the year with a hold on rates.
“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.
“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 emerge on the horizon,” she added.
As of Wednesday morning, markets were pricing in just a 14% chance of a further quarter point trim this year.
The Bank’s Monetary Policy Committee will consider the inflation report, along with another upcoming print, before making its December 19 interest rate decision.
The UK’s economic uncertainty has been a hot topic lately, especially after the Labour government took office on July 4. Critics have been accusing them of downplaying the economy and delaying their fiscal plans.
However, UK Finance Minister Rachel Reeves recently shed some light on the situation with her Autumn budget announcement on October 30.
