Inflation – “We could be staring down the barrel of an economic groundhog day”

The inflation rate, which measures price changes over time, rose by more than expected to 2.3% in the year to October, up from 1.7% in September

Annual gas and electricity bills for a typical household went up by about £149 last month although prices are rising much more slowly than in recent years.

The latest inflation figure comes after the government revealed that an additional 50,000 pensioners will be living in relative poverty next year as a result of cuts to the winter fuel allowance.

Higher inflation pushes up the cost of living for households, and can lead to interest rates remaining at a higher level, making the cost of loans, credit cards and mortgages, more expensive.

Inflation has fallen from its peak in October 2022. Prices are not falling, but are now rising less quickly.

However, there are concerns the cost of living will rise further, with firms warning they will raise prices to cover new taxes in the Budgt and, due to potential trade taxes imposed by the US, with Donald Trump pledging a 20% tariff on all imports.

 
Scott Douglas, Capital Markets Director at international corporate finance firm Centrus, commented:

“Despite the recent interest rate cut and the downward trajectory of inflation, a number of potentially inflationary forces have been unleashed.”

“Factors from the recent Autumn Budget such as National Insurance Contribution hikes, Trump’s election win and the potential rise in import costs stemming from tariffs coupled with the strengthening of the US Dollar could all have a significant impact. Ongoing conflict in the Middle East and the recent escalation between Russia and Ukraine has caused geopolitical risk to return to the energy markets, and the prospect of further energy price rises will drive inflation upwards – despite falling wage growth figures.”

“As well as heightened inflation, markets are now expecting interest rates to remain higher for longer – meaning we could be staring down the barrel of an economic groundhog day.”
 
Paul Noble, CEO of Chetwood Bank, said: “This latest inflation data is untimely, especially as we head into the festive season, but it’s not entirely unexpected with higher energy costs and price rises in the services sector. The key question is whether this is just a temporary blip following recent positive inflation news or the start of a new upward trend.

However, it’s worth bearing in mind that inflation is still markedly lower than it was at the same point 12 months ago and the bank base rate is still above inflation. What’s more, there are strong opportunities in the savings market for those looking to make their money work harder over the festive period and into 2025.

“Nevertheless, today’s figures are also a timely reminder to the banking sector that banks must do everything they can to support consumers and help ease their worries over festive spending as we move towards one of the most expensive and financially testing times of the year.”
 
George Lagarias, Chief Economist at Forvis Mazars said:

““More bills, less fun” was literally the message from the October inflation print. Prices rose across most categories, save “recreation and culture”. While the final figure, 2.3%, was very close to expectations, it still marks the official end of inflation coming down on previous dynamics. New initiatives will have to be undertaken if headline inflation is to stabilise around or below 2%, at a time when the Bank of England is more concerned about growth and has entered a rate cut trajectory. We think it is very unlikely that the BoE will cut rates in December, especially after this release, and we wouldn’t be surprised to see rate expectations for the end of 2025 tilting on the upside again.”
 
Lily Megson, Policy Director at My Pension Expert, said, “This latest rise to back above target levels is a timely reminder that we’re not yet out of the woods when it comes to economic stability. Whether this is a reactionary spike, or the start of a more sustained, upward inflationary trend remains to be seen. Either way, it reinforces the need for caution in financial planning.

“For those preparing for retirement, it’s important to stay focused on long-term financial goals and regularly review pension and investment strategies. Exploring options like diversified portfolios or alternative pension products could help ensure that savings continue to work as effectively as possible, even in the face of rising costs.

“Drastic changes are rarely the answer, but small, informed adjustments can make a significant difference. Savers should remain vigilant and seek professional financial advice. That way, they can build resilience against future fluctuations, keeping their retirement plans on track no matter what fiscal challenges lie ahead.”
 
Paresh Raja, CEO of Market Financial Solutions, said: “After years of sky-high inflation, any uptick in the CPI figure is understandably met with a healthy dose of trepidation. But the economy has turned a corner, and inflation will now regularly rise and fall – so long as it hovers close to the 2% target, smaller shifts are perfectly fine.

“Much of the noise surrounding the monthly inflation data comes down to the impact on interest rates and the cost of borrowing. The Bank of England has signalled its intent to steadily cut rates, and even the fallout from the recent Budget did not derail those plans. There could be one final base rate cut for the year when the Bank next meets in December, and today’s modest CPI uptick ought not to dramatically alter the decision-making progress. Indeed, the expectation remains that the base rate will continue to fall over the coming year.

“Lenders have an important role to play in imbuing brokers and borrowers with greater confidence. This often means not fixating on short-term trends but taking a longer-term view of the lending and property markets. Today’s inflation news may be met with negative reactions, but the bigger picture remains positive, with the property market in a position to perform well in the months ahead.”