The increase, which was above forecasts for a more modest increase, took inflation above the Bank of England’s target rate of 2%.
Inflation in the UK rose sharply in October to a six-month high and fell short of the rate targeted by the Bank of England’s rate-setters, official figures showed on Wednesday, a rise set to cement market expectations that there would be no further hikes. Lending rate cut this year.
The Office for National Statistics said higher domestic energy bills pushed consumer price inflation to 2.3% year-on-year in October from a three-year low of 1.7% recorded the previous month. Stubbornly high inflation in the service sector, which accounts for about 80% of the British economy, didn’t help either.
The increase, which was above forecasts for a more modest increase, took inflation above the bank’s target rate of 2%.
Earlier this month, the bank raised its key interest rate by a quarter of a percentage point to 4.75% – the second in three months – as inflation fell to its lowest level since April 2021.
However, Bank Governor Andrew Bailey warned that rates would not fall faster in the coming months, partly because the New Labor government’s budget measures last month would push prices higher than they would otherwise have done. Rate-setters will meet once more this year, on December 19, by which time they will be armed with higher monthly inflation readings.
Central banks around the world dramatically increased borrowing costs from near zero during the coronavirus pandemic, when prices began to rise, first as a result of supply chain problems and then because of Russia’s full-scale invasion of Ukraine that drove up energy costs. As inflation rates have fallen from multi-decade highs, central banks have begun to cut interest rates, although few, if any, economists believe rates will return to the super-low levels that have persisted in the years since the 2008 global financial crisis. will go 9.
Recent developments have dampened expectations of a quick cut from the Bank of England.
In her budget, British Treasury chief Rachel Reeves announced about 70 billion pounds ($90 billion) in extra spending, funded by increased business taxes and borrowing. Economists believe that inflation could rise next year, along with the prospect of businesses pushing up the tax hike by raising prices.
The outlook for global inflation has become more uncertain since Donald Trump was re-elected as US president. He has indicated that he will cut taxes and impose tariffs on certain imported goods when he returns to the White House in January. Both policies are likely to cause inflation in the US and globally, and thus interest rates higher than they would otherwise be.
“While we think the Bank of England will continue to cut rates in 2025, the pace of rate cuts is expected to be slower than previously expected, and rates could remain elevated for longer,” said National Institute economist Monica George Mitchell. For economic and social research.
“This outlook reflects projected inflationary pressures arising from the recently announced budget, in addition to global uncertainty surrounding the Trump presidency in particular,” she added.