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UK CPI Beats Expectations; BOE Remains Cautious on Rate Cuts
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UK’s Annual Inflation Rises to 2.3%
On Tuesday, UK consumer prices increased by an annualized 2.3% in October, driven almost entirely by higher regulated domestic energy tariffs. This followed a 1.7% rise in September, marking the first time since 2021 that inflation dipped below the Bank of England’s (BoE) 2% target.
(UK CPI y/y, Core CPI y/y, and Services CPI y/y Chart, Source: ONS)
UK inflation exceeded expectations last month, returning above the BoE’s target as underlying price pressures accelerated. This explains the BoE’s cautious approach to potential interest rate cuts. After the data release, sterling gained nearly a third of a cent against the U.S. dollar. However, as the dollar strengthened during the New York session, GBP/USD fell by 0.24%, closing at 1.2651.
(GBP/USD Daily Price Chart, Source: Trading View)
Services inflation which is closely monitored by the BoE as a key indicator of domestic price pressures, rose to 5.0% in October from 4.9% in September, aligning with market and BoE projections. Meanwhile, core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, edged up to 3.3% from 3.2%, defying expectations of a decline.
Looking ahead, the BoE has flagged inflationary pressures likely to stem from the new government’s fiscal policies, alongside global uncertainties, including President-elect Donald Trump’s proposed import tariffs, which further cloud the outlook.
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