LONDON (AP) — Inflation in the United Kingdom rose sharply to a six-month high in October and again exceeded the rate forecast by rate setters at the Bank of England, official figures showed Wednesday, a rise that will consolidate market expectations that there will be no further cuts in borrowing rates this year.
The Office for National Statistics said higher domestic energy bills lifted consumer price inflation to 2.3% in the year to October from a three-year low of 1.7% recorded the previous month. Persistently high inflation in the services sector, which accounts for around 80% of the British economy, did not help either.
The increase, which exceeded forecasts for a more modest increase, pushed inflation above the bank’s target rate of 2%.
Earlier this month, the bank raised its main interest rate by a quarter of a percentage point to 4.75%, the second in three months, after inflation fell to its lowest level since April 2021.
However, Bank Governor Andrew Bailey warned that rates would not fall too quickly in the coming months, partly because last month’s budget measures by the new Labor government would likely cause prices to rise more than they would have done otherwise. another way. Rate setters will meet once again this year, on December 19, at which time they will be armed with more monthly inflation readings.
Central banks around the world sharply increased borrowing costs from near zero during the coronavirus pandemic as prices began to soar, first as a result of supply chain problems and then due to the large-scale invasion of Ukraine by part of Russia, which raised energy costs. As inflation rates have fallen from multi-decade highs, central banks have begun to cut interest rates, although few, if any, economists think rates will fall back to the super-low levels that They persisted in the years following the 2008 global financial crisis. 9.
Recent events have reduced expectations of rapid cuts by the Bank of England.
In her budget, British Treasury chief Rachel Reeves announced around 70 billion pounds ($90 billion) of additional spending, financed by higher taxes on companies and borrowing. Economists believe the waste, along with the prospect of companies cushioning tax increases by raising prices, could lead to higher inflation next year.
The outlook for global inflation has become more uncertain since Donald Trump was re-elected US president. He has indicated he will reduce taxes and introduce 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 United States and globally and therefore keep interest rates higher than they otherwise would have been.