LONDON (AP) — Inflation in Britain rose sharply in October to a six-month high and back above the rate targeted by Bank of England rate setters, official figures showed Wednesday, a rise that boosted market expectations will strengthen. There will be no further cuts in interest rates this year.
The Office for National Statistics said higher domestic energy bills pushed consumer price inflation to 2.3% in the year to October, up from a three-year low of 1.7% the previous month. Stubbornly high inflation in the services sector, which makes up around 80% of the UK economy, did not help either.
The increase, which exceeded expectations for a more modest rise, pushed inflation above the bank’s target rate of 2%.
Earlier this month, the bank raised its key interest rate by a quarter of a percentage point to 4.75% – the second in three months – after inflation fell to the lowest level since April 2021.
However, bank chief Andrew Bailey warned that interest rates would not fall too quickly in coming months, partly because the new Labor government’s budget measures last month were likely to push prices up more than they would otherwise. Rate setters will meet again this year, on December 19, and by then they will be armed with more monthly inflation data.
Central banks around the world dramatically increased borrowing costs from near zero during the coronavirus pandemic, as prices began to rise, first due to supply chain problems and then because of Russia’s large-scale invasion of Ukraine, which sent energy costs soaring. As inflation rates have fallen from their highest levels in decades, central banks have begun cutting interest rates, although few if any economists think interest rates will return to the super-low levels seen in the years following the global financial crisis. 2008 continued to exist. 9.
Recent developments have reduced expectations of rapid cuts by the Bank of England.
In her budget, Rachel Reeves, head of Britain’s Treasury, announced about 70 billion pounds ($90 billion) in additional spending, financed by higher business taxes and borrowing. Economists think the splurge, combined with the prospect of companies absorbing tax increases by raising prices, could lead to higher inflation next year.
The global inflation outlook has become more uncertain since Donald Trump was re-elected US president. He has indicated he will cut taxes and impose tariffs on certain imported goods when he returns to the White House in January. Both policies have the potential to be inflationary both in the US and globally, thereby keeping interest rates higher than they would otherwise be.
