Inflation rose from 3.1% in September to 4.2% in October, the highest 12-month inflation print since November 2011, according to the latest figures from the ONS.
Today’s jump in inflation means it is even more likely that the Bank of England will raise interest rates at its next MPC meeting in December – the rise is anticipated to take interest rates up from the historic low of 0.1% to 0.25%.
The “main upward pressure came from electricity, gas and other fuels”, according to the ONS, after the UK’s energy cap was lifted in October.
Shane O’Neill, head of interest rate trading for Validus Risk Management, said: “After yesterday’s strong employment data, the missing piece of the puzzle according to Governor Bailey, there is seemingly little reason to expect the Bank not to hike, though this thinking has scuppered traders before.
“If the first post-furlough employment data point, released shortly before the Bank’s December meeting, confirms the strength of the employment market and inflation, as seen today, continues higher – it is going to look more and more like the Bank missed an opportunity in November.”
Sarah Coles, personal finance analyst, Hargreaves Lansdown, added: “Inflation roared ahead in October, hitting its highest rate in a decade, and raising the risk that the Bank of England will step into the inflation fight and show its teeth. Savers may be spoiling for a fight that they hope will boost their rates, but waiting for the fur to fly before switching your savings is a risky move.
“After yesterday’s better-than-expected jobs figures, higher inflation will boost expectations of an interest rate rise even further. During the last meeting, the Monetary Policy Committee highlighted unemployment fears as a key reason for sitting on their hands, but yesterday’s jobs figures are likely to have helped ease those fears, with jobs up 160,000, the month after the furlough scheme closed. It may now be ready to unleash the power of a rate rise.
“Bank of England Governor, Andrew Bailey, had already fuelled more rumours, saying how difficult it was to make a call during the last Monetary Policy Committee and how concerned he is about inflation. It seems that the Bank may now be prepared to enter the fray and start to wrestle with inflation.”
