UK consumer price inflation (CPI) accelerated sharply in October, exceeding expectations and complicating the likelihood of a rate cut in December's monetary policy meeting.
The CPI increased by 2.3% year-on-year, up from September's 1.7%, which had been the lowest level since April 2021, according to the Office for National Statistics (ONS). The inflation rate surpassed the Bank of England's (BoE) 2% target and the forecast of 2.2%, underscoring persistent price pressures in the economy.
Core Inflation Rises Unexpectedly
Core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, also climbed unexpectedly to 3.3% from 3.2% in September. This was higher than the projected 3.1%, further highlighting the stubborn upward trend in price levels.
David Bharier, Head of Research at the British Chambers of Commerce, commented:
"While inflation is down considerably from this time last year, the larger-than-expected uptick in October highlights continuing price pressures in the economy."
Monetary Policy Implications
At its November meeting, the Bank of England lowered the benchmark rate to 4.75%, marking its second rate cut this year. The move was aimed at addressing disinflationary trends. However, the BoE indicated that any further easing would be cautious, citing inflationary pressures stemming from the Autumn budget.
The latest inflation data adds complexity to the next policy announcement, scheduled for December 19, as inflation rising above the target may prompt a more cautious stance from policymakers.
Drivers of Inflation
The ONS attributed the surge in inflation to higher electricity and gas prices, with housing and household services contributing the most to the annual increase. Conversely, recreation and culture provided the largest offsetting downward impact.
Key trends in inflation included:
Goods Prices: Annual decline slowed to 0.3% from 1.4%.
Services Inflation: Rose marginally to 5.0% from 4.9%.
Monthly CPI: Increased by 0.6%, reversing September’s stagnation.
Producer Price Trends
Data from the ONS also showed mixed trends in producer prices:
Input Prices: Fell 2.3% year-on-year in October, compared to a revised drop of 1.9% in September. On a monthly basis, input prices edged up 0.1%, recovering from a 0.5% fall in September.
Factory Gate Prices: Declined 0.8% year-on-year in October, steeper than September's revised fall of 0.6%.
Outlook
The unexpected inflation uptick raises concerns about the BoE’s next steps. While inflation is significantly lower than its peak levels last year, persistent price pressures driven by energy costs and services could make policymakers more cautious about further easing in December.
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