Money blog: Sharper than expected rise in inflation deals fresh blow to interest rate cut hopes

Minister says inflation is still 'good news' story - as he defends budget

More now from Darren Jones, the chief secretary to the Treasury, who is providing his fuller reaction to news that inflation has risen to 2.3%.

He suggested it was "good news" that inflation was "stable and close to [Labour's] target" of 2%.

He said: "Gone are the days when inflation is 10% or 11% driving family bills through the roof.

"Inflation is stable, it's around target, and the key driver of inflation statistics today is that expected increase in the energy price cap set by the regulator Ofgem.

"But the good news is it's stable, it's close to target, and that will be good for families across the country."

Mr Jones was also asked about fears from retailers that prices will be higher and job losses will become inevitable in the wake of the budget.

"The budget fixed the foundations in this country, it turned the page on economic instability that we saw under the previous government," he said.

Interest rate cut chances fall away

Markets had priced in a 22% chance of another base rate cut to 4.5% in December - but this has dropped to 16% following the release of October's inflation data.

Here's a chart showing current expectations - and it's important to stress it shows an implied rate, not an actual one...

Interest rates are kept high to discourage spending and encourage saving - when these things happen, price rises tend to slow.

A cut to 4.75% was announced earlier this month but the Bank of England has been at pains to emphasise the base rate will come down gradually as it monitors the path of inflation.

High street lenders had expected the base rate to come down more quickly - and priced that into their mortgage deals through summer and autumn.

But in the last few weeks the rates they've been offering to borrowers have been rising amid concern that measures announced in the budget - such as the minimum wage hike and an additional national insurance burden for employers - could prove to be inflationary and delay base rate cuts.

The next base rate decision is on 19 December - and there's one more set of inflation data before then.

How worried should we be?

How worried should we be about rising inflation?

"It's a world away from the double-digit inflation figures we saw at the end of 2022," says business and economics correspondent Gurpreet Narwan.

"Most forecasters think that over the next few years [inflation] will stabilise at about 2%. 

"The question is, 'Is government policy helping the inflationary cause?'"

"The national insurance contribution increases [for employers] might lead to higher prices."

Narwan notes that inflation rising - and expectations it would do so - mean "most of the forecasts for interest rate cuts have also been softened as well". 

"The pace of interest rate cuts [will] probably slow and members of the Bank's Monetary Policy Committee - they're looking at the headline rate of inflation, but they're also looking at some other underlying indicators that are arguably more important than the headline rate - things like services inflation."

As we've reported, these have also risen.

'We know families are still struggling,' says minister

We've had some government response to this morning's inflation data.

Chief Secretary to the Treasury Darren Jones said: "We know that families across Britain are still struggling with the cost of living. 

"That is why the budget last month focused on fixing the foundation of our economy so we can deliver change. That includes boosting the national minimum wage, freezing fuel duty and protecting working people's payslips from higher taxes.

"But we know there is more to do. That is why the government is focused on economic growth and investment so we can make every part of the country better off."

Analysts, and even the Bank of England, have suggested the budget could prove to be inflationary, with fears employers might pass on higher tax and wage costs to consumers.

Shadow chancellor Mel Strider said: "What is worrying about today's announcement is that inflation is running ahead of expectations and official forecasts state these figures are not expected to improve. 

"Labour's budget will push up inflation and mortgage rates."

It should be noted that all through this year analysts had forecast another uptick in inflation as winter approached.

Services and core inflation higher than expected

Two figures under the bonnet of the inflation data also came in higher than expected.

Core inflation, which strips out volatile elements such as energy and food prices, was 3.3% in October - up from 3.2% and higher than the forecast 3.1%.

This figure is seen as giving a better idea of what's going on in the economy.

Services inflation, which the Bank of England is keeping a close eye on, was up 0.1 percentage points to 5% - 4.9% had been forecast.

Sharper than expected rise in inflation deals fresh blow to mortgage cut hopes

Inflation rose sharply to 2.3% in October after a hike in energy prices.

Economists had forecast a rise to 2.2% - after a three-year low of 1.7% in September.

Much of the increase in CPI came from the 9.5% rise in the energy price cap that came into force on 1 October.

ONS chief economist Grant Fitzner said: "Inflation rose this month as the increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year.

"These were partially offset by falls in recreation and culture, including live music and theatre ticket prices.

"The cost of raw materials for businesses continued to fall once again driven by lower crude oil prices."

It means inflation is back above the Bank of England's 2% target and today's announcement is likely to reduce the already low chances of another base rate cut in December.

Bank governor Andrew Bailey yesterday repeated his view that rate cuts should be gradual - amid concern the employers' national insurance hike announced in the budget could drive up prices.

He said the Bank would monitor the policy's impact, with analysts suggesting employers could pass on the tax rise to consumers.

The next base rate decision is on 19 December. There is one more set of inflation data before then.

HSBC workers bracing for cuts

Workers at high-street bank HSBC are reportedly bracing for a fresh round of job cuts as part of sweeping changes set to be enacted by CEO Georges Elhedery.

Bloomberg reports that managers will be asked to reapply for roles in the bank's new corporate and institutional banking unit.

That likely means team members from the commercial banking division will have to compete for positions against those from the global banking and markets unit.

The interviews for the roles are already under way, Bloomberg said, although HSBC did not respond to a comment request. 

Sky News has separately asked HSBC for comment.

The bank employs more than 30,000 people in the UK and has over 200,000 employees worldwide.

Bank of England governor backs British Retail Consortium on jobs warning over budget

The Bank of England governor has said industry lobby group the British Retail Consortium (BRC) was right to warn of job losses as a result of the budget.

There is a "risk" of unemployment rising due to increases in employers' national insurance contributions and minimum wage rises announced by Chancellor Rachel Reeves last month, Andrew Bailey told MPs on the Treasury Committee.

Employer NI rise justifies gradual rate cuts, BoE governor says

The governor of the Bank of England says Rachel Reeves's increase to employers' national insurance contributions means interest rates will need to be cut more gradually. 

"There are different ways in which the increase in employer national insurance contributions announced in the autumn budget could play out in the economy," Andrew Bailey said. 

He suggested that employers could choose to react by raising prices for consumers, absorbing the costs themselves, reducing the pace of wage rises or by cutting hiring.

"A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook."

The Bank's Monetary Policy Committee will next make a decision on interest rates on 19 December, where it will announce whether it is cutting, holding or raising the rate from its current 4.75%. 

-SKY NEWS