UK Inflation Surges to 2.3% in October, Surpassing Forecasts

By William Schomberg

LONDON (Reuters) -British inflation jumped by more than expected to go back above the Bank of England’s 2% target last month and measures of underlying price growth gathered speed too, showing why the BoE is moving cautiously on interest rate cuts.

Consumer prices rose by an annual 2.3% in October, pushed up in large part by an increase in regulated domestic energy tariffs, after a 1.7% increase in September which was the first time the inflation rate had fallen below the BoE’s target since 2021.

Sterling was up by almost a third of a cent against the U.S. dollar immediately after the data was published and interest rate futures priced in a slightly slower pace of rate cuts.

The BoE’s most recent forecast and a Reuters poll of economists had both pointed to a CPI reading of 2.2% in October.

“These figures confirm a disappointing resurgence in inflation as the recent tailwind from lower energy costs turned into a headwind in October, following the increase in (regulator) Ofgem’s price cap which drove a notable jump in household bills,” Suren Thiru, Economics Director at accountancy body ICAEW, said.

The increase represented the biggest month-to-month rise in the annual CPI rate since October 2022.

Services inflation – which the BoE views as a key measure of domestically generated price pressure – rose to 5.0% in October from 4.9% in September, the Office for National Statistics said.

The BoE had expected it to rise to 5.0% in October.

Core inflation, which excludes energy, food, alcohol and tobacco, picked up to 3.3% from 3.2% in September.

“While the slight uptick in services price pressures confirms that it remains a significant hurdle to sustainably maintain inflation below target, slowing wage growth and a weakening labour market should help put it on a more consistent downward trajectory,” Thiru said.

Chief Secretary to the Treasury Darren Jones said the government was trying to help reduce the cost of living “but we know there is more to do.” Science minister Peter Kyle told Times Radio: “This does concern us.”

BoE Governor Andrew Bailey on Tuesday stressed the central bank’s message that borrowing costs are likely to come down only gradually as policymakers were awaiting clearer signs of how much inflation pressure remains in Britain’s economy.

Earlier this month, the central bank said the first budget of Britain’s new government was likely to add to inflation next year and beyond as higher taxes on companies were likely to translate into higher prices.