UK inflation rose to a six-month high in October, surpassing the Bank of England’s 2% target, driven mainly by rising household energy bills.
The Office for National Statistics (ONS) reported that the annual Consumer Price Index (CPI) rose to 2.3% last month, up from 1.7% in September – the highest level since April. This figure exceeded both economists’ forecasts of 2.2% and the Bank of England’s estimate of 2.1%.
This increase was expected by many following Ofgem’s decision to increase the price of energy in October. The ONS noted that housing costs, reflected in higher gas and electricity prices, were the biggest contributor to inflation. There were also slight increases in transport, furniture costs and restaurant prices. In contrast, the leisure and leisure industry saw a drop in inflation, making its smallest contribution to inflation in two years.
Grant Fitzner, chief economist at the ONS, said: “Inflation picked up this month as rising energy prices meant higher gas and electricity costs compared to the same period last year. This was partially offset by a fall in entertainment and culture, including live music and theater ticket prices.
“Businesses’ raw material costs continued to decline, driven further by lower crude oil prices.”
Core components of inflation also saw an increase. Inflation in the services sector, which is closely watched by the Bank of England, strengthened from 4.9% to 5%, in line with the Bank’s forecasts. Core inflation, which excludes variable food and energy prices, rose from 3.2% to 3.3%, against expectations for a decline to 3.1%.
Andrew Bailey, Governor of the Bank of England, has warned that inflation in the services sector remains “out of step” with the Bank’s 2% target over the medium term. Despite cutting interest rates for the second time this year to 4.75%, policy makers are divided on the future path of inflation. Four of the nine members of the Monetary Policy Committee expressed different opinions when speaking in Parliament on Tuesday.
Official figures due out tomorrow are expected to show an increase in the Consumer Price Index to 2.1% in October, driven by rising household energy bills. Traders currently do not expect another interest rate cut this year, with the highest of four cuts expected in 2025, which could bring the base rate down to 3.75%.
The UK inflation rate of 2.3% in October compares with an average of 2% in the eurozone and 2.6% in the United States.
