Bank Governor poised to pen letter as inflation is expected to rise
The Consumer Price Index measure of inflation is predicted to hit 3.1% in October.
Inflation looks set to reach a fresh five-year high, forcing Bank of England Governor Mark Carney to explain to the Government why the cost of living is rising so rapidly.
The Consumer Price Index (CPI) measure of inflation is predicted to hit 3.1% in October when official figures are released on Tuesday.
It would see CPI surge beyond the 3% rate recorded in September to its highest level since March 2012 when it pushed to 3.5%.
Such a move would force Mr Carney to write a letter to Chancellor Philip Hammond explaining why inflation is so high.
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%.
Upward pressure on the cost of living is expected to come from rising food and energy prices, with the Brexit-hit pound also remaining a key driver.
Surging inflation has put UK consumers under a sustained squeeze, with CPI outstripping wage growth and forcing households to take on debt or raid their savings to keep spending.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The contribution of electricity prices to inflation likely increased by 0.05 percentage points in October.
“British Gas raised its standard tariff by 12.5% on September 15. The ONS collected its data on September 13, so the price hike will appear for the first time in the official data in October.
“In addition, food CPI inflation likely rose to about 3.4% in October, from 3.0% in September, increasing its contribution to the headline rate by 0.04 percentage points.”
Economists are predicting a drop in fuel costs to provide some downward pressure, with the lion’s share of Brent crude’s rise beyond $60 a barrel coming in November.
Alan Clarke, Scotiabank’s head of European Fixed Income Strategy, said: “Lower petrol prices (and base effects) will bear down on inflation, while higher airfares inflation will provide an offset.
“More specifically, petrol prices fell by 0.4% m/m this October, compared to a 2.3% m/m rise a year ago.
“That base effect represents a drag on headline inflation of close to 10 basis points.”
The update comes after the Bank hiked interest rates from 0.25% to 0.5% for the first time in more than 10 years earlier this month.
It was sparked by the Bank’s need to dampen CPI, which it predicts will now peak at around 3.2% this Autumn.