Investing.com - UK inflation rose more than expected last month, climbing back above the Bank of England’s target and potentially stalling further interest rate cuts.
Annual consumer price inflation climbed to 2.3% in October from 1.7% in September, which had been the lowest reading since April 2021, above the 2.2% expected.
The monthly rate soared 0.6%, a jump from the flat reading the prior month.
Core CPI, which excludes volatile energy and food prices, rose 0.4% on a monthly basis, meaning the annual rate rose to 3.3% from 3.2% in the prior month.
The annual core figure had actually been expected to fall to 3.1% in October.
While the annual headline figure is still some way below the 11% it peaked at two years ago after the outbreak of the Ukraine war, the fact that it has aggressively risen above the Bank of England’s 2% medium-term target could prove problematic for the central bank given the hefty public spending increases in the budget.
"Today’s CPI print marks a shift away from previously encouraging data," said Sanjay Raja, Chief UK Economist at Deutsche Bank (ETR:DBKGn) Research.
"Today’s data won’t be as encouraging for the Bank of England, who have talked up a gradual approach in dialling down restrictive policy. In fact, today’s data will likely reinforce this message – allowing the MPC to take a more gradual and cautious path in cutting interest rates."
Deutsche Bank Research expects inflation in 2025 to track higher than this year, but still return to the BoE’s target in two years’ time.
The Bank of England raised its inflation forecasts for the next three years after the Oct. 30 budget, which increased taxes on employers, threatening to push up prices and wages.
Markets were pricing about four rate cuts by the UK central bank by the end of 2025 before the budget, but those bets have dwindled to between two or three since the budget and the election of Donald Trump as the next U.S. president.
The next meeting of the Bank of England’s Monetary Policy Committee, the group that determines the country’s base rate, is in December, and this inflation reading will likely reduce expectations of an interest rate cut then.