LONDON — Inflation in the U.K. rose sharply to a six-month high in October and back above the rate targeted by rate-setters at the Bank of England, official figures showed Wednesday, an increase that is set to cement market expectations that there will be no further cuts in borrowing rates this year.
The Office for National Statistics said higher domestic energy bills pushed consumer price inflation up to 2.3% in the year to October from the three-year low of 1.7% recorded the previous month.
The increase, which was above forecasts for a more modest increase, took inflation above the bank’s target rate of 2%.
Earlier this month, the bank increased 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 Gov. Andrew Bailey cautioned that rates wouldn’t be falling too fast over the coming months, partly because last week’s budget measures from the new Labour government would likely see prices rise by more than they would otherwise have done. Rate-setters will meet once more this year, on Dec. 19, by which time they will be armed with more monthly inflation reading.
Central banks worldwide dramatically increased borrowing costs from near zero during the coronavirus pandemic when prices started to shoot up, first as a result of supply chain issues and then because of Russia’s full-scale invasion of Ukraine which pushed up energy costs. As inflation rates have recently fallen from multidecade highs, the central banks have started cutting interest rates.