Any lingering hope that the Bank of England might deliver a pre-Christmas interest rate cut next month appears to have evaporated, after official data showed inflation jumping to 2.3% in October.
The CPI measure had been expected to tick up, after dipping to 1.7% in September, but 2.3% was stronger than expected.
September’s reading was the first time inflation had fallen been below the Bank’s 2% target since July 2021, and looks likely to be the last for some time.
Much of the explanation lies in energy prices, with Ofgem’s quarterly price cap rising from October – in contrast with the same period last year, when utility bills were falling rapidly from the peak hit following Russia’s invasion of Ukraine.
Electricity prices rose by 7.7% in October, the ONS said, having fallen by 7.5% last year. Gas prices increased by 11.7% in October, having fallen 7% last year.
Economists were quick to suggest that the stronger-than-expected rise confirmed expectations that the Bank’s monetary policy committee (MPC) will wait until the new year before going further, after cutting rates to 4.75% earlier this month.
Donald Trump’s arrival in the White House is also giving policymakers pause: if he presses ahead with across-the-board tariffs, the short-term impact at least is likely to be inflationary.
The increase in CPI was not unexpected; but the government will be conscious that cash-strapped households are still feeling the pinch.
Responding to the measures, the chief secretary to the Treasury, Darren Jones, stressed that the government knew there was still “more to do”, pointing to measures including the significant increase in the national living wage, due in April.
The Bank’s governor, Andrew Bailey, has also made clear that he and his MPC colleagues would be closely monitoring how the policy changes made at Rachel Reeves’ budget last month will affect the path of growth and inflation in the coming months.
Retailers have said they are likely to increase prices as they absorb the costs of rising employer national insurance contributions, the biggest money-raiser in the budget, which kicks in next April.
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The Office for Budget Responsibility (OBR) suggested that the budget package could boost inflation by about 0.5%, including through stronger growth resulting from higher-than-expected government spending.
Not surprisingly, the Conservatives are keen to hammer home the message that any increase from now on is down to Labour.
As the shadow chancellor, Mel Stride, put it in response to Wednesday’s figures: “Labour’s budget will push up inflation and mortgage rates.” It is a bold strategy from the party that gave us Liz Truss, as Labour will remind voters at every opportunity.
But with mortgage rates ticking up and many homeowners still facing higher rates as they roll off fixed deals – albeit much lower than in Truss’s heyday – there are risks ahead for Labour.