Consumer prices in the United Kingdom surged at the fastest rate in nearly a decade in October amid soaring energy costs
Because inflation is running at more than double the Bank of England’s target rate of 2%, the central bank is under pressure to raise interest rates to try to curb the price surges by cooling the economy. It had been widely expected to become the first central bank among the leading industrial nations to raise interest rates earlier this month but held off because of some unease about the outlook for unemployment.
With figures on Tuesday showing the U.K.’s labor market remaining resilient, many analysts said the latest inflation numbers gives the rate-setters on the bank’s Monetary Policy Committee, or MPC, further ammunition to modestly lift the benchmark rate from the record low of 0.1% to 0.2%.
“With CPI inflation moving further away from the Bank of England’s 2% target, there is now even more pressure on the MPC to act to rein in price growth at its upcoming December meeting,” said economist Ellie Henderson at Investec.
In its release Wednesday, the statistics agency noted that the inflation data was influenced by the effects of the coronavirus-related lockdowns that triggered “dramatic declines” in some prices last year. These unusually low prices are now the starting point for calculating 12-month price increases, causing short-term “distortions” in the figures.
These are factors that are affecting inflation levels around the world. Last week, the U.S. recorded an annual inflation rate of 6.2%, its highest level in nearly 31 years. European countries are recording similar spikes, too, but so far neither the U.S. Federal Reserve nor the European Central Bank appear to be as close as the Bank of England in considering a rise in borrowing costs.
For British homeowners and those looking to borrow, a pre-Christmas rate hike is the last thing they will want given that everything else appears to be heading higher.
“With prices rising faster than pay, many families will struggle to keep up with basic living costs, let alone Christmas celebrations,” said Frances O’Grady, general secretary of the umbrella Trades Union Congress.
Associated Press reporter Danica Kirka contributed to this report.