Further pressure on the Bank of England to raise interest rates

Share

The Bank of England is under mounting pressure to increase interest rates next month after inflation rose to the highest level in a decade in October amid the squeeze on living standards from soaring household energy bills.

A sharp increase in gas and electricity prices pushed inflation, as measured by the consumer prices index, to 4.2% in October, up from 3.1% in September, according to the Office for National Statistics – the highest rate since November 2011.

In a sign of the rising pressure on household budgets before what could be a difficult winter, the figure was higher than was forecast by City economists, and more than double the 2% target set by the government for the Bank of England. It comes after the energy regulator Ofgem lifted its consumer price cap after wholesale gas prices soared to record levels as economies around the world emerged from lockdown and supplies of Russian gas to Europe failed to meet demand.

And economists expect further inflationary pressures in the coming months after the German government suspended its approval process for the Nord Stream 2 gas pipeline, triggering an increase in wholesale energy prices. The jump in the annual inflation rate was also driven by higher prices in restaurants and hotels after a partial removal of a VAT cut for the hospitality sector, as well as soaring prices for second-hand cars.

Much of the increase reflected depressed price levels a year ago as the coronavirus pandemic dragged down economic activity around the world, including the worst recession in Britain for 300 years. Threadneedle Street unexpectedly held back from raising rates this month, confounding financial market expectations.

The Bank forecasts inflation will peak at close to 5% next year, in what it predicts will be a temporary increase, before gradually fading back towards its 2% target as disruption caused by the pandemic recedes. Economists said the higher inflation rate and robust employment figures published on 16th November would give the green light for a rise in interest rates in December from the current level of 0.1%, most likely to 0.25%.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.

Sources: Techlink

Share

Other News

Equity release surges in popularity

A surge in homeowners looking to free up cash from their properties propelled the figure for equity release to £1.05bn in the three months to the end of September.

How to beat inflation

For the past decade there has been a simple answer to how to reliably beat inflation: put your money in an equity income investment trust. Is that still the case?

Further pressure on the Bank of England to raise interest rates

The Bank of England is under mounting pressure to increase interest rates next month after inflation rose to the highest level in a decade in October.