Any lingering hope that the Bank of England might deliver a pre-Christmas interest rate cut next month has evaporated, after official data showed inflation jumping to 2.3% in October.
If it continues to rise in the coming months, Labour will be forced to defend itself against Tory claims that government policy is at least partly responsible.
The CPI measure had been expected to creep up, after dipping to 1.7% in September, but 2.3% was stronger than predicted.
September was the first time inflation had fallen below the Bank’s 2% target since July 2021, and looks likely to be the last for a while.
Not surprisingly, the Conservatives are keen to hammer home the message that any increase from now on is down to Labour.
As the shadow chancellor, Mel Stride, put it in response to Wednesday’s figures: “Labour’s budget will push up inflation and mortgage rates.” It is a bold strategy from the party that gave us Liz Truss, as Labour will remind voters at every opportunity.
Much of the explanation for last month’s jump in inflation lies in energy prices, with Ofgem’s quarterly price cap rising from October – in contrast with the same period last year, when utility bills were falling rapidly from the peak hit following Russia’s invasion of Ukraine.
Electricity prices rose by 7.7% in October, the ONS said, having fallen by 7.5% last year. Gas prices increased by 11.7% in October, having fallen 7% last year.
But there may be some truth in the coming months in the argument that the government has given inflation a (modest) boost. The Office for Budget Responsibility (OBR) has suggested Rachel Reeves’s budget package could increase inflation by about 0.5%, including through stronger growth, resulting from higher-than-expected government spending.
The Bank’s governor, Andrew Bailey, has also made clear that he and his MPC colleagues would be closely monitoring how the policy changes were likely to affect the path of GDP and inflation.
Retailers have said they expect to increase prices as they absorb the costs of rising employer national insurance contributions, the biggest money-raiser in the budget, which starts next April.
Against that backdrop, economists now confidently expect the Bank’s monetary policy committee (MPC) to wait until the new year before going further, after cutting rates to 4.75% earlier this month.
Donald Trump’s arrival in the White House is also giving policymakers pause: if he presses ahead with across-the-board tariffs, the short-term impact at least is likely to be inflationary.
Responding to the inflation data on Wednesday, the chief secretary to the Treasury, Darren Jones, emphasised that the government knew there was still “more to do”, pointing to measures including the significant increase in the “national living wage”, due in April.
The increase in CPI was not unexpected; but as the UK enters a cold snap, with energy bills on the rise, the government will be conscious that cash-strapped households are still feeling the pinch.
