Following the latest UK inflation figures that showed CPI to be up 2.3% in October from 1.7% in September, Danni Hewson, AJ Bell head of financial analysis, has commented.
“No one will be surprised that the headline rate of inflation has ticked up again, however unwelcome it might be. Households across the country will be eyeing their thermostats as the cold snap bites, hyper aware that the cost of energy shot up at the start of October when the new price cap came into effect.
“The increase in gas and electricity prices was the main factor behind the bigger than expected jump in headline CPI, but it’s actually other areas which are likely to catch the attention of Bank of England rate setters.
“At 2.3% inflation is only slightly above the Bank’s 2% target but it does disrupt a three-month downward trend and market expectation of a further interest rate cut in December is now only 16%, with almost half thinking that even February will be too early for the MPC to cut again. The fact that core inflation edged up a touch, with the service sector the most watched part of that equation, will give the nine people on the committee pause for thought.
“The service sector is a massively important part of the UK economy and labour costs have a huge impact on that sector. Given that today’s data looks back rather than forward, it’s impossible to properly quantify what the impact of tax increases announced in the Budget will mean for services and for inflation as a whole.
“But with a number of housebuilders already warning that they’re seeing an increase in build costs, the fact that producer input prices rose 0.1% on a monthly basis does suggest that pressure on goods prices might well re-emerge over the coming months.
“Some businesses in the low margin hospitality and retail sectors are already upping prices in an attempt to get ahead of what could be an uptick across the board. Consumers have grown both weary and hyper aware of price inflation and they will only stomach so much before they change their habits.
“Lending costs might have fallen twice over the year, but those moving to new fixed price mortgages may be wondering why mortgage rates have been heading in the other direction. For those households it’s another knock to their disposable income and generally the consumer is lacking confidence and bracing themselves for what might come next.
“Over in the US, big box retailer Walmart warned that prices there are likely to rise if Donald Trump’s talk of tariffs becomes more than words.
“Just at a point people were beginning to feel hopeful that the past couple of years of sky-high inflation was behind them, there’s niggling concern about what might be to come. Though there is no indication that the factors at play will result in anything like the 11.1% high from October 2022, those price increases are still being felt by us all.”
