Surprise CPI print hints at +4% base rate to end of 2025 denting growth bid

This morning’s October inflation report will likely leave Bank of England officials in no hurry at all to continue cutting UK rates at upcoming policy meetings. A fresh increase in energy bills has added an extra squeeze to household disposable incomes, while underlying price pressures, which excludes the volatile energy component, also edged up in October. This will be a cause for concern for the MPC, particularly as it comes hot off the heels of the Autumn Budget announcement, which is widely expected to keep consumer prices higher for longer.

We see a high probability of a much shallower pace of BoE rate cuts in 2025 than had been previously anticipated. There will be no change in rates in December, and it is now not beyond the realms of possibility that the base rate remains at or above 4% through to the end of next year. This will provide a challenging backdrop for the UK government to boost growth to anywhere near the extent that chancellor Reeves would have hoped for when she delivered her all-action budget last month.