British inflation in consumer prices (CPI), which is among the highest of any significant advanced country and unexpectedly held steady at 6.7% in the month of September, keeps the likelihood of another increase in interest rates alive.
According to the Center for National Statistics, the main thing preventing a decline in the annual rate was an increase in gasoline costs between August and September.
However, core inflation in goods and services prices, two less volatile metrics regularly tracked by the Bank of England (BoE), were also strong, which is likely to have some policymakers concerned about a longer-term price pressures.
“The progress in bringing inflation downward continues to be slow,” said Ian Stewart, the chief economist at the accounting company Deloitte. “The continuation of underlying inflation, as well as food and service price challenges, suggests that rates of interest will probably to stay close to their present levels for a significant portion of the next year.”
Following the release of the data, the pound increased while the price of British government bonds decreased. Financial markets concluded that another rate hike by the BoE is more probable than not, but not certainly on November 2, when the Bank of England will make its next move.
The headline inflation rate in September’s data is still lower than what the BoE predicted in early August, according to some experts, and the MPC of the BoE did not resume its cycle of rate tightening as a result.
Bruna Skarica, an economist with Morgan Stanley, stated that she anticipated rate reduction to start in May 2024 or a little later. “We anticipate the MPC to stay suspended this year, but to keep pushing back towards any rapid cuts,” Skarica added.
Following an unexpected decline in prices in August and other negative data, the BoE kept the rate of interest on hold last month for the first period since it began its increasing cycle in December 2021.
Huw Pill, the central bank’s senior economist, stated last week that the issue of additional rate increases was “finely balanced,” and governors Andrew Bailey forecasted that subsequent votes, following September’s 5-4 split, would be “tight.”
After Rishi Sunak, the prime minister, promised to halve inflation in January, the British government is also closely monitoring the issue. Numerous households have seen their standards of life decline as incomes have been unable to keep up with prices.
The cost of food, a concern for many lower-income households, was 12.1% more expensive in September than it was a year earlier.
“As we observed across many G7 countries, price inflation rarely decreases in a linear fashion, but if we continue to stick with our plan then we continue to anticipate it to keep dropping this year,” said Jeremy Hunt, the finance minister, following the release of the data.
In Britain, consumer prices have increased by 17% in the last two years, a rise that typically takes close to ten years.