Higher energy prices push inflation back above target to 2.3%

Inflation rose to a six-month high in October, and above the Bank of England’s 2 per cent target, on the back of rising household energy bills.
The official measure of annual consumer price inflation accelerated from 1.7 per cent in September to 2.3 per cent — the highest since April, according to the Office for National Statistics. The uptick was higher than economists’ forecasts of 2.2 per cent and the Bank of England’s projection of 2.1 per cent.
Higher inflation in October was widely expected after Ofgem, the energy regulator, raised the price cap on domestic energy bills last month.
The ONS said that inflation was driven up most by housing costs — reflecting the rise in gas and electricity — with smaller climbs in transport, furniture costs and restaurants. The largest drag on prices came from declining inflation in the recreation and leisure sector, whose contribution to the prices basket was the smallest in two years.
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Grant Fitzner, chief economist at the ONS, 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. These were partially offset by falls in recreation and culture, including live music and theatre ticket prices.
“The cost of raw materials for businesses continued to fall, once again driven by lower crude oil prices,” he said.
Other key sub-components of inflation also rose last month, including a closely watched measure of prices in the services sector, which strengthened from 4.9 per cent to 5 per cent, in line with the Bank’s forecasts.
Andrew Bailey, governor of the Bank, warned on Tuesday that prices in the growth-driving services sector, which makes up three-quarters of the UK economy, were still uncomfortably high and inconsistent with the Bank hitting its 2 per cent target over the medium term.
Core inflation, which strips out volatile food and energy costs, also rose from 3.2 per cent to 3.3 cent, defying expectations of a drop to 3.1 per cent.
The Bank’s monetary policy committee cut interest rates for the second time this year, taking the base rate to 4.75 per cent. However, policymakers are divided over the future path of inflation, with four of the nine-strong MPC at a hearing in front of MPs on Tuesday disputing whether prices were expected to rise or fall in the coming months.
In advance of the inflation release, financial markets were betting on no more rate cuts this year and a maximum of four in 2025, lowering the base rate to 3.75 per cent.
The UK’s 2.3 per cent inflation last month compares to an average of 2 per cent in the eurozone and 2.6 per cent in the US.