Today's surge in inflation to 2.6 per cent has sparked concerns over the º£½ÇÊÓƵ economy's wellbeing, say analysts. This development comes just before the Bank of England's critical interest rate decision tomorrow, with consensus in the markets now firmly against a rate cut due to yesterday's higher-than-expected wage growth figures.
"Having fallen to just 1.7 per cent back in September, the strengthening inflationary pressures will dismay rate-setters ahead of their meeting tomorrow," commented Jeremy Batstone-Carr, European strategist at Raymond James, as reported by .
The recent rise in inflation is primarily attributed to the drop out of last November's lower fuel and underlying goods prices from the year-on-year calculations.
Additionally, climbing fuel costs, along with hikes in clothing, second-hand car, and recreation prices have contributed to the inflation increase. Renting prices, escalating by over seven per cent annually and 0.8 per cent in the past month alone—almost 0.3 percentage points above Deutsche Bank's predictions—are among the most significant contributors to the inflationary pressure.
Scott Gardner, investment strategist at Nutmeg, pointed out that this marks the second consecutive month of rising inflation, "further raising questions about the current health of the º£½ÇÊÓƵ economy as we move into 2025".
Despite the overall economic climate, it wasn't all doom and gloom for the Bank of England. Core inflation, which excludes volatile goods such as food and energy, came in slightly below the anticipated 5.1 per cent, at a precise five per cent.
Neil Birrell, CIO of Premier Miton, suggested that both the government and the Bank of England would be "pleased" with the inflation figures, which aligned with market predictions. Following higher-than-expected wage data, markets have dismissed the possibility of an interest rate cut tomorrow, indicating that 2024 will conclude with the Bank of England having reduced rates only twice.
"Attention will now focus on retail sales, particularly over the key Christmas period, which will give guidance on how the consumer sector is holding up," Birrell stated. "The outlook for the economy remains on a bit of a knife edge."
Daniel Calasi, chief investment strategist at Evelyn Partners, noted: "Looking further on, the º£½ÇÊÓƵ inflation trajectory will be complicated by the demand boost from the Budget at the end of October after the Government relaxed fiscal rules," He added: "The hike in the National Minimum Wage and Employers National Insurance (both from April) and their impact on encouraging producers to raise prices to maintain profit margins is another consideration for the BoE."
