LONDON—British inflation spiked close to a ten-year high in October on increased energy bills and resurgent post-lockdown demand, data showed Wednesday, sparking talk of a pre-Christmas interest rate hike.
The annual rate jumped to 4.2 percent, the highest level since November 2011, the Office for National Statistics said.
That followed 3.1 percent in September and was more than double the Bank of England’s 2.0-percent target.
In reaction, the pound jumped against the euro and dollar as traders priced in a December interest rate hike from the BoE.
The data “now makes it odds-on that all the pre-Christmas headlines will be of the Bank of England steals Christmas variety, if they do bite the bullet and belatedly nudge rates higher,” said CMC Markets analyst Michael Hewson.
Rising consumer prices ramp up the cost of living, especially when wages fail to keep pace.
The data “makes for uncomfortable reading and goes to show the punishing effects of higher energy and food prices on family finances,” said Russ Mould, investment director at AJ Bell.
“It almost certainly means the Bank of England will raise interest rates soon, potentially as soon as next month,” he added.
Inflation leapt on higher prices for domestic electricity and gas, as well as motor fuel which faced shortages, the ONS said.
Second-hand car prices are surging as a worldwide semiconductor shortage dents new vehicle production.
A global supply crunch across various sectors and the soaring cost of raw materials are also fueling inflationary pressures.
“Costs of goods produced by factories and the price of raw materials have also risen substantially and are now at their highest rates for at least 10 years,” said ONS chief economist Grant Fitzner.
The BoE had this month kept its key interest rate at a record-low 0.1 percent, but flagged a likely hike in the coming months to dampen inflation.
As countries reopen from pandemic lockdowns, businesses are struggling to meet demand for goods and services, sending prices soaring.
Markets had expected the BoE to raise its main rate in November for the first time in more than three years.
The BoE decision to sit tight contrasted with the US Federal Reserve, which is tightening monetary policy as growth recovers and inflation spike
US inflation had rocketed to a 30-year high of 6.2 percent in October.
Meanwhile the European Central Bank is sticking to easy money for now.