UK inflation rose to a six-month high in October, exceeding the Bank of England’s 2% target, driven primarily by rising household energy bills.
The Office for National Statistics (ONS) reported that the annual CPI rose to 2.3% last month, up from 1.7% in September – the highest rate since April. This figure exceeded economists’ expectations of 2.2% and the Bank of England’s forecast of 2.1%.
The rise was widely expected following Ofgem’s decision to increase the energy price cap in October. The Office for National Statistics noted that housing costs, which reflect rising gas and electricity prices, were the biggest contributor to rising inflation. There were also smaller increases in transportation costs, furniture and restaurant prices. Conversely, the leisure and entertainment sector saw a decline in inflation, resulting in its lowest contribution to the price basket in two years.
Grant Fitzner, chief economist at the Office for National Statistics, said: “Inflation rose this month because the increase in the energy price cap means gas and electricity costs are higher compared to the fall at the same time last year.” This was partly offset by declines in entertainment and culture, including live music and theater ticket prices.
“Companies’ raw material costs continued to decline, driven once again by lower crude oil prices.”
The main subcomponents of inflation also saw increases. The inflation rate in the services sector, which the Bank of England closely monitors, rose from 4.9% to 5%, in line with the bank’s expectations. The core inflation rate, which excludes volatile food and energy prices, rose from 3.2% to 3.3%, beating expectations for a decline to 3.1%.
Andrew Bailey, Governor of the Bank of England, warned that inflation in the services sector remains “incompatible” with the bank’s 2% target in the medium term. Despite interest rates being cut for the second time this year to 4.75%, policymakers are divided on the future path of inflation. Four of the nine members of the Monetary Policy Committee expressed different views during a parliamentary hearing on Tuesday.
Official figures due tomorrow are expected to show a slight rise in the consumer price index to 2.1% in October, driven by higher household energy bills. Traders are not currently expecting another rate cut this year, with a maximum of four cuts expected in 2025, which could take the base rate to 3.75%.
The inflation rate of 2.3% in the UK in October compares with an average of 2% in the euro zone and 2.6% in the United States.