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Sterling (GBP) rose sharply against all major peers on Wednesday as data from the Office for National Statistics (ONS) showed inflation accelerated more than expected in October. The Consumer Price Index (CPI) report showed that the overall annual inflation rate for the year accelerated to 2.3%, higher than the 2.2% expected and the 1.7% in September.
Headline inflation rose sharply by 0.6% compared with the previous month, above expectations of 0.5%, after remaining flat in September.
Core CPI – which excludes volatile items such as food, energy, oil and tobacco – rose 3.3%, up from 3.2% in the previous reading. Economists had expected core inflation to fall to 3.1%.
Services inflation, an indicator closely watched by Bank of England (BOE) officials, accelerated to 5% from the previously reported 4.9%. Signs that price pressures are accelerating further may force traders to reduce their support for a rate cut at the Bank of England’s December policy meeting.
On Tuesday, traders priced in around an 80% chance of a 25 basis point rate cut by the Bank of England at its December meeting, Reuters reported.
Several Bank of England (BoE) policymakers, including Governor Andrew Bailey, also warned at a Treasury Select Committee (TSC) monetary policy hearing on Tuesday that price pressures would persist. “Services inflation remains above levels consistent with target inflation,” Andrew Bailey said. Catherine Mann, an external member of the Bank of England and an outspoken hawk, said: “Inflation expectations in financial markets indicate that the Bank of England will not achieve a sustainable 2% inflation rate within the forecast horizon. ”
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