The Bank of England is facing mounting pressure to further increase base rates amid persistent inflation fears. The UK's inflation rate remained steady at 6.7% in September, as confirmed by ONS Chief Economist Grant Fitzner on Wednesday. This stagnation has sparked concerns of additional interest rate hikes, despite earlier predictions of a slight drop in inflation.
The steady inflation rate is primarily attributed to rising costs for motor fuels, hotel stays, and a $10 increase in Brent crude oil. These factors have counterbalanced the falling prices for food, non-alcoholic drinks, household appliances, and airfares. The ongoing Ukrainian war and its resultant energy price spike have also contributed to the stubborn inflation.
Experts including Ranald Mitchell and Gary Bush have voiced their concerns over the situation. Mitchell has advocated for more base rate increases while Bush has criticized Threadneedle Street for its lack of post-pandemic foresight. John Choong has highlighted potential risks for sectors like housebuilders and banks due to possible extra interest rate raises.
Significant reductions in inflation are expected next month due to changes in the energy price cap, to be confirmed following the Monetary Policy Committee meeting. However, Sarah Coles suggested that persistent inflation might mean higher rates for longer and pointed to the possibility of another rate hike discussion during the November 2 meeting, especially considering the last vote was 5:4.
The fear of inflation has already had an impact on the London stock market, which saw a drop last Wednesday. Meanwhile, wages rose by 7.8% in the three months to September, outpacing inflation for the first time in two years. Amid strong wage growth and continued consumer spending, these factors could influence base rate decisions.
The risk of oil hitting $100 per barrel has also been noted as a potential inflationary pressure. This comes as Chancellor Jeremy Hunt stressed the need for continued efforts to bring down inflation, and Marcus Brookes from Quilter Investors described the UK's progress in reducing inflation as 'slow and steady'.
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