INDUSTRY REACTION: Shock rise in CPI inflation

The UK’s inflation rate hit 2.3% last month, up from 1.7% in September, breaking through the Bank of England’s 2.0% target and putting further base rate cuts in serious doubt.

The shock rise in the Consumer Price Index (CPI) is being attributed to higher energy costs and the rising energy cap, with the typical heating bill going up by £149. The CPI measures the overall change in consumer prices based on a representative basket of goods and services over time.

Rising energy cap

The cost of many raw materials has been falling, though but wage inflation has been creeping up and the fear is that the Government’s ‘tax and spend’ Budget and especially the rises in the minimum wage and employers’ NI contributions will further stoke inflation.

The news is not only likely to hit hopes of a falling base rate cut but it is also likely to put the brakes on falling mortgage costs.

Nathan Emerson, CEO at Propertymark, says: “It is disappointing to see that inflation has increased considering the overall trend throughout the year.

“However, there are many national and global factors that impact the UK economy, hopefully inflation will better stabilise, and the UK economy should continue to adapt, no matter what happens in response to national and international events.

“With housing playing a vital role in the growth of the economy, over time it would be positive to see interest rates drop to levels not seen since 2019, in order that more people can afford to enter the housing market for the first time, or make their next all-important home move.”

Anyone who declared ‘mission accomplished’ in Britain’s battle against inflation last month spoke too soon.”

Peter Stimson, Head of Product at lender MPowered Mortgages, commented: “Anyone who declared ‘mission accomplished’ in Britain’s battle against inflation last month spoke too soon.

“After spending one solitary month below the Bank of England’s 2% target, consumer inflation has leapt back into warning territory.

“At 2.3%, annual CPI is barely a fifth of the painful 11.1% it reached in October 2022. But this abrupt move in the wrong direction is a setback for the Bank’s rate-setters, who are duty-bound to get inflation down to 2% and keep it there.”

He adds: “The return of inflationary pressure means the Bank of England is likely to adopt a ‘wait and see’ approach on any further Base Rate reductions, not just in December, but in the immediate months following as well.”

Labour’s spending and tax plans in the October 30 Budget have thrown a spanner in the works.”

Investment analyst Alice Haine of Bestinvest says: “While the rate-setting Monetary Policy Committee is likely to consider other data points aside from the headline inflation rate when they deliver their next interest rate decision – such as the cooling jobs market and slowing economic growth in the third quarter of the year – Labour’s spending and tax plans in the October 30 Budget have thrown a spanner in the works.

“The BoE has already warned that Chancellor Rachel Reeves’ changes may push up the cost of living with major businesses also wading in to raise the alarm over the effect hikes in business taxes will have on inflation. “

Paresh Raja, CEO of specialist lender Market Financial Solutions, struck a more optimistic note, saying: “After years of sky-high inflation, any uptick in the CPI figure is understandably met with a healthy dose of trepidation.

“But the economy has turned a corner, and inflation will now regularly rise and fall – so long as it hovers close to the 2% target, smaller shifts are perfectly fine.”