UK inflation rebounded more sharply than expected last month as energy prices and air fares spiked, which is likely to cause headaches for the government and Bank of England.
The consumer prices index (CPI) increased 2.3% annually in October, surpassing the forecasted 2.2% and marking a significant rise from September’s 1.7%.
The acceleration in the headline CPI was primarily driven by an increase in the Ofgem energy price cap, resulting in electricity prices rising by 7.7% and gas prices by 11.7%.
Recreation and culture prices, including live music and theatre tickets, experienced declines, providing a partial offset to the upward trend.
Core CPI, which excludes fuel and food prices, was up 3.3%, from 3.2% the month before and higher than the 3.1% expected. And services CPI, which is a key gauge for the Bank of England, unexpectedly bounced to 5.0% from 4.9% a month earlier.
Office of National Statistics’ chief economist Grant Fitzner said: “Inflation rose this month as the increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year.
“The cost of raw materials for businesses continued to fall, once again driven by lower crude oil prices.”
Sticky inflation is gearing up to be a major pressure point for the Labour government.
Chancellor Rachel Reeves’ tax-heavy fiscal policy, coupled with the prospect of tariffs being imposed by US president-elect Donald Trump, both threaten to push consumer prices up.
Monica George Michail, associate economist at the National Institute of Economic and Social Research, stated: “While we think the Bank of England will continue to cut rates in 2025, the pace of rate cuts is expected to be slower than previously anticipated, and rates may stay elevated for longer.
“This outlook reflects forecasted inflationary pressures stemming from the recently announced budget, in addition to heightened global uncertainty, particularly surrounding the Trump presidency".