Nov 20 2024: Consumer inflation in the UK rose sharply in October, surpassing expectations and climbing back above the Bank of England’s (BoE) 2% target, potentially complicating the path for future interest rate cuts.
Key Inflation Data:
- Annual CPI: Increased to 2.3% from 1.7% in September, exceeding the forecast of 2.2%.
- Monthly CPI: Jumped by 0.6%, compared to a flat reading the previous month.
- Core CPI: Excluding energy and food, core inflation rose 0.4% month-on-month, bringing the annual rate to 3.3%, defying expectations of a drop to 3.1%.
Implications for Monetary Policy:
The rise in inflation, though still far below its 11% peak two years ago, signals potential challenges for the BoE amid rising public spending pressures. The October 30 budget introduced higher taxes on employers, which could spur upward pressure on both prices and wages.
The BoE has already raised its inflation forecasts for the next three years, signaling caution over the medium term.
Impact on Rate Expectations:
- Prior to the budget, markets anticipated four rate cuts by the BoE by the end of 2025.
- Post-budget and following Donald Trump’s U.S. election win, expectations have been pared back to two or three cuts.
Looking Ahead:
The BoE’s Monetary Policy Committee will meet in December, and this unexpectedly high inflation reading reduces the likelihood of an imminent interest rate cut. As fiscal and wage pressures grow, the central bank may face a more challenging balancing act in supporting the economy while containing inflation.
