Britain’s surging inflation unexpectedly held steady last month, as rising food prices were countered by a drop in fuel costs.
Figures from the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) measure of inflation was 3% in October, unchanged from a five-year high in September.
Economists had pencilled in a higher rate of 3.1%, which would have forced Bank of England Governor Mark Carney to write a letter to Chancellor Philip Hammond explaining why inflation is so high.
(PA graphic)
The Government has set an inflation target of 2%, with protocol dictating that the Bank must contact Mr Hammond if inflation exceeds 3% or falls short of 1%.
The Bank, which hiked interest rates to 0.5% earlier this month, expects CPI to peak at around 3.2% in the autumn, adding further pressure to UK households grappling with paltry wage growth.
The pound was 0.3% lower at 1.31 US dollars and 0.6% down at 1.12 euro after the inflation data.
Chris Williamson, chief business economist at IHS Markit, said there will be “red faces all round” after inflation failed to expand as expected.
He said: “The recent surge in price pressures is primarily due to the depreciation of sterling since last year’s EU referendum, which has increased the cost of imported goods and services, but today’s numbers will add to the sense that the worst of this impact has already passed.
“Data on company costs, which tend to change ahead of changes in consumer prices, have already shown signs of having peaked earlier in the year.
“The unexpected failure of the inflation rate to rise to more than 1% above the Bank of England’s 2% target means Mark Carney can put his pen back in his pocket, no longer needing to write a letter of explanation to the Chancellor.
“However, the policy prescription was always going to be merely one of waiting, as inflation will cool providing the exchange rate does not fall further.”
Annual food prices rose to the highest level in four years, up 4.2% last month in contrast to a 3.4% expansion in September.
The lion’s share of the growth came from vegetables, driven by a rise in the cost of premium potato crisps.
On the month, food prices grew by 0.6%, up from a 0.2% fall over the same period last year.
Electricity, gas and other fuels also pushed 1.3% higher on a monthly basis, compared to 0.6% growth in October 2016.
The jump was triggered by British Gas, which decided to hike its standard tariff by 12.5% on September 15.
It is the first time the price rise has appeared in official data due to the time frame in which the information is collected.
The main downward pressure on the cost of living came from fuel prices, which fell by 0.4% month-on-month after rising by 2.3% in October 2016.
Petrol prices fell by 0.9 pence a litre to 117.3 pence last month, while diesel rose by 0.4 pence per litre to 120.5 pence.
Paul Diggle, senior economist at Aberdeen Standard Investments, has backed inflation to keep rising in the coming months.
He said: “This probably isn’t the peak in UK inflation. The impact from last year’s currency depreciation, and the latest move upwards in oil prices, still have a few more months to run.
“So the Bank of England is stuck between a rock and a hard place: inflation is well above target; but Brexit uncertainty lingers and consumer spending growth could weaken.”
The Retail Prices Index (RPI), a separate measure of inflation, was 4% last month, up from 3.9% in September.
The Consumer Prices Index including owner-occupiers’ housing costs (CPIH) – the ONS’ preferred measure of inflation – was 2.8% in October, the same rate as the month before.
A Treasury spokesperson said: “We understand that people are concerned about increases in everyday costs.
“That’s why we have cut taxes and introduced the National Living Wage, which has lifted the wages of the lowest paid by over 6% above inflation.
“It’s also why we are bringing in an energy cap to help people with the cost of household bills.”