The inflation rate in the United Kingdom rose last month, exceeding expectations and reaching levels higher than the Bank of England’s target. This increase poses a challenge to monetary policies, hindering the possibility of further interest rate cuts.
The annual consumer price inflation rate reached 2.3% in October, compared to 1.7% in September, which was the lowest level since April 2021. This figure surpassed expectations of 2.2%. On a monthly basis, prices jumped by 0.6% after remaining stable the previous month.
As for the core inflation index, which excludes energy and food prices, it rose by 0.4% on a monthly basis, pushing the annual rate to 3.3%, compared to 3.2% in the previous month. This figure defied expectations, which predicted a drop to 3.1% in October.
Although the overall inflation rate remains far below the peak of 11% recorded two years ago due to the impacts of the war in Ukraine, the rapid rise above the Bank of England’s 2% target could place additional pressure on the central bank. This is especially significant in light of increased government spending in the October budget. The recent budget included corporate tax hikes, which could contribute to higher production costs, and consequently, rising prices and wages.
Before the budget announcement, markets anticipated that the central bank would make four interest rate cuts by the end of 2025. However, following the budget and the U.S. elections, these expectations dropped to between two and three cuts.
As the Bank of England’s Monetary Policy Committee meeting in December approaches, this inflation surge is likely to reduce expectations for an interest rate cut in the upcoming meeting. These data refocus attention on the extent to which current financial and monetary policies impact markets in the near and medium term.
