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Data published on Wednesday revealed that Britain’s inflation rate in October spiked to levels above what was predicted, pushing it past the Bank of England’s designated target. This uptick is primarily attributed to the escalating energy prices, which have placed considerable financial strain on both consumers and businesses throughout the country.
In a statement released by the Office for National Statistics, it was revealed that the Consumer Prices Index (CPI) climbed to 2.3 percent over the year ending in October, recovering from the three-year low of 1.7 percent observed in September.
The Office for National Statistics further noted in its statement that the Consumer Prices Index had last reached 2.3 percent in April, with analysts generally expecting the rate to rise to 2.2 percent in this latest period, a consensus that was surpassed.
Set at 2.0 percent, the inflation target established by the Bank of England represents the central bank’s goal for price stability, a crucial aspect of its broader economic mandate.
“Inflation rose… 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,” ONS chief economist Grant Fitzner said of October’s data.
Britain’s energy regulator Ofgem sets a price cap quarterly that suppliers can charge customers. The latest increase in October was 10 percent but this is expected to drop markedly in January according to forecasts.
The regulator had cited rising prices on international energy markets owing to increasing geopolitical tensions, and extreme weather events driving competition for gas, as the reasons behind the sharp rise.
“We know that families across Britain are still struggling with the cost of living,” senior Treasury official Darren Jones said in reaction to Wednesday’s inflation reading, adding that the Labour government needed to do more to help.
Analysts said despite prices rising faster than expected, the BoE remained on course to keep cutting British interest rates.
“But it lends some support… that the Bank will skip the December meeting and cut rates only gradually, by 25 basis points in February and at every other policy meeting until rates reach 3.50 per cent in early 2026,” forecast Ruth Gregory, deputy chief UK economist at Capital Economics research group.
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The central bank earlier this month trimmed borrowing costs by 25 basis points to 4.75 per cent.
The Bank of England, in its follow-up statement, indicated that the debut budget from Britain’s Labour government—released in October—would likely stimulate economic growth due to the tax increases and additional borrowing measures; however, it would also result in a rise in inflation.
In a reversal of earlier strategies, major central banks began to reduce interest rates at the start of this year, following a period of aggressive hikes aimed at controlling the inflation that had spiked after the COVID-19 lockdowns ended and Russia’s invasion of Ukraine set off global economic instability.
In August, the Bank of England took a significant step by lowering its key interest rate for the first time since the early months of 2020, reducing it from the peak of 5.25 percent—its highest in 16 years—after UK inflation gradually returned to more stable levels.
In October of 2022, the UK experienced a sharp inflationary spike, exceeding 11 percent for the first time in more than forty years, fueled by the Russian invasion of Ukraine, which significantly disrupted both energy and food supplies and sent prices into a steep rise.
As businesses endeavored to return to their pre-Covid operational pace, they were met with considerable supply challenges, further hampered by difficulties in re-establishing their former work patterns and processes.
