People seen dining outdoors in Soho in London in September 2021. Since Covid restrictions were lifted in the U.K., people have flocked back to streets, shops and public spaces.
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LONDON — The cost of living in the U.K. surged in October to a 10-year high, with the figure now more than double the target set by the Bank of England.
The U.K.’s Consumer Prices Index rose by 4.2% in the 12 months to October 2021, up from 3.1% in September. Economists polled by Reuters had a expected a figure of 3.9% for October.
The Bank of England held interest rates steady earlier this month, defying many investors’ expectations that it would become the first major central bank to hike rates following the coronavirus pandemic.
The Bank has been monitoring a confluence of crucial data points as inflation remains persistently high while economic growth moderates and labor conditions tighten. Wednesday’s data will surely add more pressure on the Bank to act at its December meeting.
The Bank of England expects inflation to rise further to around 5% in the spring of 2022 before falling back toward its 2% target by late 2023, as the impact of higher oil and gas prices fades and demand for goods moderates.
Samuel Tombs, the chief U.K. economist at Pantheon Macroeconomics, agreed that a “5% peak lies ahead.”
“The jump in the headline rate in October, to its highest rate since December 2011, was driven primarily by the 12.2% increase in Ofgem’s default tariff price cap,” he said in research note, referencing the surge in gas prices.
“In addition, motor fuel prices jumped by 3.0% month-to-month in October, but fell slightly a year ago, with the result that its contribution to the headline rate increased by 0.1pp. Food CPI inflation also rose to 1.2%, from 0.8%, closing the gap with producer prices.”
Sarah Coles, a personal finance analyst at Hargreaves Lansdown said the figures raise the risk that the Bank of England will “step into the inflation fight and show its teeth.”
“Savers may be spoiling for a fight that they hope will boost their rates, but waiting for the fur to fly before switching your savings is a risky move,” she said in a research note.
Euro zone inflation hit a new 13-year high in October, at 4.1%, as the currency bloc also battles surging energy costs. This was the highest level since July 2008, according to Reuters data, and was ahead of a consensus forecast of 3.7%. September’s figure had come in at 3.4%.
—CNBC’s Elliot Smith contributed to this article.
Correction: An earlier version of this story misstated how the October figure compared with historical data.