UK Inflation Rises in October Amid Higher Energy Costs

Britain’s annual inflation rate climbed to 2.3% in October, surpassing analysts’ expectations and edging above the Bank of England’s (BoE) 2.0% target, the Office for National Statistics (ONS) reported Wednesday. The increase was driven primarily by higher energy bills, following a hike in the energy price cap set by regulator Ofgem.

The rise marks a jump from September’s three-year low of 1.7%, and it is the first time inflation has reached 2.3% since April. Analysts had forecast a more modest increase to 2.2%.

Energy Costs and Price Cap Changes

ONS chief economist Grant Fitzner attributed the inflation spike to the October adjustment of Ofgem’s energy price cap, which saw a 10% increase in costs for gas and electricity compared to a price fall during the same period last year.

However, forecasts indicate that the price cap may drop significantly in January, providing some relief to households and businesses facing high living costs.

Geopolitical tensions and extreme weather events have fueled competition for gas on international markets, contributing to the rise in energy prices, according to Ofgem.

Government and Economic Reactions

Reacting to the data, senior Treasury official Darren Jones acknowledged that families continue to struggle with the cost of living. He urged the Labour government to intensify efforts to provide economic relief.

Despite the higher-than-expected inflation rate, analysts believe the BoE will continue its gradual approach to cutting interest rates.

“We expect the Bank to skip a rate cut in December and instead lower rates by 25 basis points in February, with subsequent cuts at every other meeting until rates stabilize at 3.50% in early 2026,” predicted Ruth Gregory, deputy chief UK economist at Capital Economics.

Inflation Trends and Historical Context

This marks a continuation of the BoE’s recent trend of rate reductions, following a 25-basis-point cut earlier this month that brought borrowing costs to 4.75%.

The rise in inflation contrasts with the steady decline since October 2022, when inflation had surged to over 11%—a 40-year high—amid supply chain disruptions caused by the Russia-Ukraine war and post-Covid recovery challenges.

With the Labour government’s October budget, featuring tax hikes and increased borrowing, expected to boost growth while adding inflationary pressures, the central bank and policymakers remain focused on balancing economic growth with price stability.