Inflation in the United Kingdom rose more than expected in October, reaching 2.3% annually compared to 1.7% in September, according to data published by the Office for National Statistics. This increase, driven mainly by the increase in regulated energy tariffs, took inflation above the Bank of England’s (BoE) 2% target for the first time since the beginning of the year.
A triple blow for families and economic policies
Core inflation, which excludes volatile items such as energy and food, rose to 3.3% from 3.2% in September, defying market expectations for a decline. This increase was accompanied by a growth in services inflation, considered key by the BoE, which rose to 5.0%.
James Smith of the Resolution Foundation think tank called the report “a triple whammy of bad news” as it will affect both families and economic policymakers. Headline inflation, services and core prices rose simultaneously, which could make interest rate reduction plans difficult.
Global impact and local factors
International uncertainty also weighs on the British economy. US President-elect Donald Trump’s threats to impose tariffs on imports and the inflationary effects of Keir Starmer’s government’s recent budget aggravate the situation.
Monica George Michail, an associate economist at the National Institute for Economic and Social Research, said these pressures could keep interest rates high for longer. In addition, he highlighted the impact of new labor taxes in April, which could be passed on to prices.
Financial markets and future prospects
In response to the inflation data, UK two-year bond yields rose, reflecting expectations of higher interest rates in the near term. However, prices charged by factories fell 0.8% in the last 12 months, which could be a sign of inflationary relief in the coming months.
BoE Governor Andrew Bailey stressed that any rate cuts will be gradual, while markets are now pricing in two to three rate cuts by the end of 2025.
With inflation potentially reaching 3% in 2025, the UK faces a considerable challenge in balancing economic growth, the labor market and the cost of living. Families and businesses, meanwhile, will have to navigate an increasingly uncertain economic environment.
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