Inflation hits highest level in a decade in October

Consumer price inflation hit its highest level in a decade in October as energy and fuel costs rose, reinforcing expectations of a rate hike by the Bank of England.

According to data released on Wednesday by the Office for National Statistics, inflation pushed up to 4.2% from 3.1% in September, coming in above expectations of 3.9% and well above the BoE's 2% target. It also marked the highest level since November 2011.

The ONS said the "main upward pressure" came from electricity, gas and other fuels after the energy cap was increased by 12% last month. Restaurants and hotels, education, furniture and household goods, and food and non-alcoholic beverages also contributed.

Core CPI inflation - which strips out volatile elements such as food and fuel - rose to 3.4% in October from 2.9% the month before and versus expectations of 3.1%.

ONS chief economist Grant Fitzner said: "Inflation rose steeply in October to its highest rate in nearly a decade. This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels.

"Costs of goods produced by factories and the price of raw materials have also risen substantially, and are now at their highest rates for at least 10 years."

Paul Dales, chief UK economist at Capital Economics, said that coming after Tuesday’s "decent" labour market release, this inflation data makes an interest rate hike in December even more likely.

"Unfavourable base effects may raise CPI inflation to around 4.7% in November and the surge in wholesale prices may result in it rising to around 5% by April next year," he said. "That peak would be in line with the Bank’s forecast, which the Bank has said is consistent with interest rates needing to rise.

"Further ahead, we suspect that CPI inflation will fall back a bit further and a bit faster in the second half of next year, perhaps to close to the 2% target by December 2022. So, although interest rates may well rise from 0.10% to 0.25% in December and perhaps to 0.5% in February, we don’t think that they will reach the level of 1.00-1.25% currently priced into the market for the end of next year."

Sterling got a boost on the news and by 0745 GMT, was trading up 0.2% against the dollar at 1.3458 and 0.3% firmer versus the euro at 1.1898.