There are growing fears of yet another Bank of England base rate rise next month following the surprise inflation figure released by the government.
The annual rate of inflation stayed stubbornly at 6.7 per cent according to official figures released recently - the same rate as a month ago. There had been a prediction of a small fall.
A significant drop in the inflation rate is tipped for next month when shifts in the energy price cap will be reflected in the data - however, this will be confirmed some days after the Bank of England’s next monetary policy committee decides on base rate.
Ranald Mitchell of Charwin Private Clients, a financial consultancy, says: “This is bad news for everyone … Fuel prices are on the march, wage growth is strong and consumers are still spending. There looks like little choice now than further base rate rises to combat the ongoing, and lengthy battle against stubborn inflation.”
Gary Bush, a financial adviser at MortgageShop, comments: “The sticky inflation problem highlights yet again that, post-pandemic, the Bank of England was asleep at the wheel. Threadneedle Street should have expected an uptick of this nature once the lockdowns ended. Sadly the Ukrainian war added further fuel to the fire that we are now all battling with for such an elongated period.”
And John Choong, a senior equity analyst at Investing Reviews, adds: “Markets were always being too optimistic hoping for inflation to fall to 6.5 per cent in September, especially when oil prices rose to as high as $91 last month. This hasn't been helped by current geopolitical tensions, the risk of oil hitting $100 per barrel, and the recent spike in gas prices. Given that markets were only pricing in a final [interest rate] hike, the renewed possibility of another couple could now have unfavourable repercussions for sectors such as housebuilders and banks.”
Sarah Coles - the influential head of personal finance at business consultancy Hargreaves Lansdown - says: After such a tight [5:4] vote at the last Monetary Policy Committee meeting, we were hoping for another fall in inflation, which would weight the scales in favour of another rate pause at the next meeting on November 2.
“Stubborn inflation isn’t necessarily a sign we’re set for a rate hike, but it may well mean rates stay higher for longer, and if we get more signs that pressure on prices isn’t easing, it will strengthen the argument around the table that one more hike might be needed.”
Her colleague Susannah Streeter, head of money and markets at Hargreaves Lansdown, says high oil prices add to worries "that inflation will stay stubborn". It means the door to another UK interest rate hike "has been kept ajar" and she adds: "At the very least still untamed inflation is pushing any chance of a rate cut further back into next year.”