Inflation in the UK climbed to 2.3% in October, surpassing the Bank of England's 2% target and fueling speculation that further interest rate cuts may be postponed until 2024.
The rise, driven primarily by higher energy bills, reversed the downward trend seen earlier this year when inflation stood at 1.7% in September.
The Office for National Statistics (ONS) reported that increases in gas and electricity prices offset declines in oil prices, which had helped reduce transport and manufacturing costs. Lower prices for theatre and live music tickets provided some relief, preventing an even sharper rise in inflation.
The October figure marginally exceeded the 2.2% expected by City economists.
Retailers have warned that measures introduced in Labour’s recent budget are likely to result in higher prices, compounding the strain on consumer confidence. The combination of tax increases and rising energy costs has led to what some analysts describe as a “disappointing resurgence in inflation.”
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, noted that last year’s falling energy prices have now reversed, creating upward pressure on inflation. He predicted that inflation would “drift gradually higher,” with energy costs, budget impacts, and global trade tensions keeping the rate above the Bank of England's target until at least 2025.
The Bank of England has already cut interest rates twice this year, bringing them to 4.75%. However, October’s inflation data is likely to delay any further cuts. A December reduction is now considered improbable, with financial markets estimating only a 16% chance of a rate cut next month.
“October’s marked rise in inflation makes a December interest rate cut more unlikely,” Thiru said, adding that concerns over price pressures and international economic uncertainty might make policymakers more cautious about loosening monetary policy.
Economists highlighted a surprising uptick in core inflation—excluding volatile items like food and fuel—which rose from 3.2% to 3.3%, contrary to expectations of a decline. Services inflation also increased, climbing from 4.9% to 5%.
Ruth Gregory, deputy chief UK economist at Capital Economics, attributed part of the overshoot to a sharp rise in airfares inflation, which saw its largest October increase since 2001. James Smith, research director at the Resolution Foundation, called the data “a triple dose of bad news,” pointing to rising core inflation, services inflation, and energy prices.
“This is a stark reminder that the lingering effects of the cost-of-living crisis are still weighing on the economy,” Smith said.
Darren Jones, chief secretary to the Treasury, acknowledged the ongoing struggles faced by UK households. “Last month’s budget focused on fixing the foundation of our economy to deliver meaningful change, including boosting the national minimum wage, freezing fuel duty, and protecting workers from higher taxes,” he said.
However, Shadow Chancellor Mel Stride criticized the government’s approach, noting that inflation is running ahead of expectations. “Labour’s budget will push up inflation and mortgage rates, which will further burden working families,” he said.
Over the last three years, rising prices have eroded consumer spending power in the UK more than in other major economies. Between January 2021 and May 2024, UK consumer prices increased by 22.8%, compared with 20.9% in Germany, 18.8% in the US, and 16.6% in France.
As inflation remains stubbornly high, the Bank of England faces a difficult balancing act in its efforts to maintain price stability while supporting economic growth.