UK inflation jumps to 2.3% in October

The British pound has edged lower on Wednesday. In the North American session, GBP/USD is trading at 1.2653, down 0.21% at the time of writing.

UK inflation higher-than-expected

UK inflation rose to 2.3% year-on-year in October, compared to 1.7% in September and above the market estimate of 2.2%. The main drivers of the gain in inflation were higher housing and energy. Core inflation, which excludes energy and food items, inched upwards to 3.3%, up from 3.2% in September and above the market estimate of 3.1%. Services inflation, which has been a constant headache for the Bank of England, rose from 4.9% to 5%.

Monthly, headline CPI climbed 0.6% in October, up from 0% in September and above the market estimate of 0.5%. Core inflation rose 0.4%, above the September gain of 0.1% and higher than the market estimate of 0.3%.

The jump in the October inflation report is a disappointment for the BoE, which has largely contained inflation after bringing it down from double-digits in early 2023. The markets have pared down the probability of a rate cut at the Dec. 19 meeting to around 16% as a result of the inflation report. The BoE has lowered rates twice this year as part of its easing cycle but will need to see inflation resume its downswing before it feels comfortable resuming rate cuts.

The BoE is also concerned about the government ‘s new budget. Governor Bailey said the central bank would take a “gradual approach” to lowering interest rates as it assesses the inflationary effect of the budget. The budget is aimed at boosting economic growth but this will likely raise inflation in the near term, which could result in a slower pace of rate cuts.

GBP/USD Technical

• GBP is testing support at 1.2662. The next support line is 1.2634
• 1.2711 and 1.2739 are the next resistance lines

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