UK inflation rose more than expected to a 41-year high of 11.1 per cent, adding to pressure on the Bank of England to raise interest rates again.
The increase in the Consumer Prices Index was stronger than the 10.9 per cent figure expected by the central bank or the 10.7 per cent median that economists had forecast. The Office for National Statistics said Wednesday that food and energy prices drove the increase.
Inflation is now more than five times higher than the BOE's 2 per cent target, underlining the case for higher interest rates. The central bank has increased its benchmark lending rate eight times in the past year to prevent higher energy costs from creating a wage-price spiral. Investors are betting the BOE hikes rates another half point next month to 3.5 per cent.
"Today's inflation figure of 11.1 per cent continues to cast a shadow over consumers and businesses," said Andrew Aldridge, a partner at Deepbridge Capital. "It is still unclear if we are reaching peak inflation for the year, but nevertheless this is a tough period for public markets."
The pound rose as much as 0.3 per cent to $1.1901 after the release.
Inflation would have been 13.8 per cent had the government not introduced an energy price guarantee that limited the increase in electricity and natural gas prices in October, the ONS said. The inflation rate for low income households was 11.9 per cent compared with 10.5 per cent for more wealthy ones.
The cost of leisure activities rose in price in October. There was a downward affect on prices from transport costs, reflecting a shift toward purchasing second-hand cars.
Household electricity and natural gas prices surged 27 per cent after Britain's energy regulator allowed its cap on bills to rise with wholesale prices. While the government protected consumers from some of the much of the impact of market forces, the scale of the increase is big enough to eat into the spending power of many consumers and businesses.
Petrol and diesel prices fell 0.5 per cent in the month after an increase a year ago.
"October could mark a turning point as we expect the headline rate of inflation to start falling in the coming months. Looking ahead, the combination of weaker growth and the waning impact of global supply shocks could lead to easing price pressures." Yael"Selfin, chief economist at KPMG UK
BOE Governor Andrew Bailey and his colleagues will testify to Parliament about the outlook for inflation Wednesday afternoon. On Thursday, Chancellor of the Exchequer Jeremy Hunt is due to set out budget measures including how the government will subsidize energy bills after the current package finishes in April.
"We are thinking very carefully about all those issues, but just to correct any misunderstanding, the energy price support that we give to families will not end from next April, and I'll be announcing on Thursday what that support will be," Hunt said in Parliament Tuesday.