UK inflation jumps stronger-than-expected to a 41-year high of 11.1 percent

Soaring energy bills pushed UK inflation even higher-than-expected to a 41-year high in October, increasing pressure on the Bank of England to raise interest rates again.

The consumer price index rose 11.1 percent from a year earlier, the Office for National Statistics said on Wednesday. That was higher than the central bank’s peak forecast of 10.9 percent and the median of 10.7 percent that economists had been expecting.

Policymakers, led by Governor Andrew Bailey, who is testifying before Parliament later Wednesday, have said they are prepared to aggressively raise borrowing costs to prevent a price spiral. Inflation is now more than five times the BOE’s 2% target, despite eight benchmark rate hikes over the past year.

The numbers contrast with the outlook in the US, where speculation is mounting that inflation may have peaked, allowing the Federal Reserve to steer clear of rate hikes. Russia has cut natural gas supplies to Europe since its attack on Ukraine, which has pushed up electricity costs in wholesale markets across the region.

“It’s still unclear if we’ll hit the highest inflation for the year, but nonetheless, this is a difficult time for public markets,” said Andrew Aldridge, partner at Deepbridge Capital.

The pound rose as much as 0.3 percent to $1.1901 after the release. Money markets add up to 10 basis points to rate hike bets, taking interest rates to their peak of around 4.65 percent by August.

Chancellor of the Exchequer Jeremy Hunt said he would help the BOE bring inflation back on target by taking “tough but necessary” action to rein in the Treasury Department’s budget deficit. He blamed Russian President Vladimir Putin’s invasion for “pushing up global inflation.”

“This insidious tax eats away at paychecks, household budgets and savings while sapping any chance for long-term economic growth,” Hunt said in a statement. “We cannot have long-term, sustainable growth with high inflation.”

Rising energy prices were the largest contributor to last month’s inflation numbers, despite a government program to cushion the impact on consumers. Gas prices rose nearly 36.9 percent over the month, and electricity prices rose 16.9 percent.

Inflation would have been 13.8 percent had the government not introduced an energy price guarantee that capped the rise, the ONS said.

Wage growth has lagged behind price increases, the biggest hit on living standards ever and putting pressure on Prime Minister Rishi Sunak’s government to act. The inflation rate for low-income households was 11.9 percent, compared to 10.5 percent for wealthier ones.

On Thursday, Hunt is due to set out budgetary measures, including how the government will subsidize energy bills after the current package expires in April. He said his goal is to reduce debt while protecting the most vulnerable.

“With the protective nature of the energy price guarantee so evident in the data, the Chancellor will now be under even greater pressure to maintain the program for the foreseeable future,” said Kitty Ussher, chief economist at the Institute of Directors, which represents the company’s executives.

Core inflation, which excludes energy, food, alcohol and tobacco prices, was unchanged at 6.5%. Food and drink prices rose 2 percent during the month, with milk, cheese and eggs all rising sharply, along with chocolate, jam, tomato ketchup, cooking sauces and fizzy drinks. Ten out of eleven food categories rose, with the exception of tea and coffee.

The cost of leisure activities increased in October. Transportation costs weighed down on prices, reflecting a shift towards buying used cars.

Gasoline and diesel prices fell 0.5 percent in the month after rising a year ago.

There were indications that business costs were easing as the year-to-date increases in input prices to October were less than in September.

“October could mark a turning point as we expect headline inflation to start declining in the coming months,” said Yael Selfin, chief economist at KPMG UK. “Looking ahead, the combination of weaker growth and the fading impact of global supply shocks could lead to easing price pressures.” UK inflation jumps stronger-than-expected to a 41-year high of 11.1 percent

Fry Electronics Team

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