UK Inflation Jumps, Doubts Over Next BoE Rate Cut

UK inflation jumped more than expected in October, rising above the Bank of England’s 2% target. Some analysts suggested that October’s reading could push back a potential rate cut by the UK’s central bank. As a result, the pound rose against the US dollar on Wednesday morning.

In other news, Canada's CPI annual inflation rose by 2.0% in October, registering an increase from September's 1.6% rise and beating analysts’ expectations for a 1.9% increase.

UK CPI Inflation Rises In October

UK inflation rose sharply, coming in at 2.3% in October, on a yearly basis, as a report from the Office for National Statistics showed today. The figure was much higher than the 1.7% September reading and surpassed analysts’ expectations for 2.2%.

ING’s economists wrote in their note to investors that the BoE is more focused on services inflation figures than headline and core. Commenting on future interest rate cuts, they suggested: “Even if there is another inflation print before the next BoE meeting, we would probably need a sharp slowdown in services inflation to put a cut back on the table. Our house view is that services CPI will keep bouncing around 5% for the next four months and only turn decisively lower from 2Q25, when we expect the BoE to accelerate the pace of monetary easing. We currently see the next BoE cut in February, which isn’t fully priced in (19bp)."

Eurozone Inflation Up In October

According to data published by Eurostat, the eurozone area’s annual inflation rate was 2% in October 2024, elevated from 1.7% in September. During its October meeting, the ECB’s governing board reiterated its commitment to a "data-dependent and meeting-by-meeting" approach to future monetary policy decisions.

The ECB’s head Christine Lagarde said that “Europe is falling behind in innovation and productivity compared to the US and China.” Lagarde stressed that the EU bloc is not as competitive as it should when she said that the “EU specializes in outdated technologies; only 4 of the world’s top 50 tech firms are European.”

BoE’s Bailey Says Gradual Approach To Rates Is Best Option

Bank of England (BoE) Governor Andrew Bailey testified on the November Monetary Policy Report (MPR) before the UK Parliament's Treasury Select Committee on Tuesday. The BoE’s head said that “services inflation is still above a level that's compatible with on-target inflation” adding that “we need to watch services inflation very carefully, reflects labour market developments.”

Andrew Bailey noted that a gradual approach to removing monetary policy restraint would help the UK’s central bank to observe risks regarding the inflation outlook. The BoE’s Governor expressed his concern regarding inflation saying that inflation has fallen lower than expected but could not be sure if that would be the case in the next months.

Fed’s Schmid Says Central Bank Has More Tools To Fight Inflation

Federal Reserve (Fed) Bank of Kansas President Jeffrey Schmid suggested that now it’s time for the Fed to dial back the restrictiveness of its monetary policy. Schmid stressed that recent rate cuts signal the Fed’s confidence that inflation will come down close to the 2% target.

The Fed’s policymaker said that “large fiscal deficits will not cause inflation because the Fed will prevent it, though that could mean higher interest rates,” addressing concerns over Donald Trump’s proposed policies.

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