UK interest rates are expected to remain higher for a longer period than previously thought, as UK inflation rose to 2.3%, a sharp 0.6% increase from September’s reading.
“Annual CPI inflation rose to 2.3% in October, following a temporary dip to 1.7% in September driven by base effects from last year. This increase comes amidst the recent hike in the Ofgem energy price cap. We forecast annual headline inflation to rise further towards the end of the year as base effects drop out,” explained Monica George Michail, NIESR Associate Economist.
It wasn’t just energy prices pushing inflation higher. Increased wages and service prices are playing a part and are expected to keep inflation above target in the near term.
“This month’s unwelcome return above the inflation target is unlikely to be a one-off: inflationary pressures look set to keep prices rising more quickly. The good news is that public sector pay rises and the rise in the minimum wage should help ease the immediate pain of higher prices for some people,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
“The bad news is that this could end up feeding into higher prices further down the line, spurring another round of inflation. Retailers are also warning that higher National Insurance could power price rises, and with inflationary pressure building, rate cuts might be off the agenda for a while yet.”
Higher inflation will present a problem for the Bank of England who have only recently said that they saw inflation trending down to target without the need for drastic changes in interest rates. Although today’s one reading doesn’t signify a shift in the overall trend, it does go against the grain of recent readings and adds further weight to the argument interest rates are set to remain higher for longer.
“Today’s rise in UK inflation, coupled with wider anticipated global inflationary pressures from President Trump’s trade tariffs and tax policies and compounded by the Chancellor’s Autumn Budget fiscal measures, are likely to result in higher interest rates for longer,” said Douglas Grant, Group CEO of Manx Financial Group.
“This scenario exerts significant pressure on businesses, amplifying investment hesitancy and underscoring the critical need for businesses to adapt their lending strategies to withstand ongoing market uncertainty.”