The UK’s inflation rate for September 2023 remained steady at 6.7%, contradicting earlier predictions of a dip to 6.6%, according to data released on Wednesday. This unexpected stability has sparked concerns about a potential Bank of England (BOE) interest rate hike scheduled for November 2. The decision will be influenced by domestic inflationary pressures, primarily driven by rising oil prices and falling food costs.
The Monetary Policy Committee (MPC) of the BOE may need to reassess its earlier stance against a rate hike in light of these figures. Core inflation slightly decreased from 6.2% to 6.1%, while services inflation unexpectedly rose to 6.9%.
Recent labor market data from the Office for National Statistics (ONS) indicates a slowdown in job growth and a reduction in workers on payrolls. These developments, combined with the current inflation rate, imply an increase in welfare payments next April due to the annual uprating based on the previous September’s Consumer Price Index (CPI) inflation.
A split opinion is observed within the MPC regarding how to respond to these economic indicators. Member Catherine Mann advocates for an aggressive monetary policy to combat inflation, while Swati Dhingra cautions that overtightening could potentially harm the UK’s supply potential.
Huw Pill, Chief Economist at the BOE, emphasized that official wage data, which has remained consistently high, appears as an outlier compared to other economic indicators. He calls for vigilance in controlling inflation amidst these discrepancies.
The market is now keenly awaiting the second batch of labor market data due next Tuesday, which could provide further insights into the UK’s economic trajectory and influence the BOE’s decision on interest rates.