UK inflation rate rises to 3.2%

The surprise rise in inflation means the Bank of England continues to face a policy dilemma

The UK Consumer Prices Index (CPI) inflation rate rose unexpectedly to a four-month high of 3.2% in October, according to the Office for National Statistics (ONS).

Analysts had expected the CPI figure to remain unchanged at 3.1%.

Meanwhile, Retail Prices Index (RPI) inflation fell slightly to 4.5%, down from 4.6% a month earlier.

RPI contains a bigger share of housing costs, and is used to calculate many benefits payment and pensions.

Higher fuel prices made a large contribution to the rise in inflation. Prices for fuels and lubricants jumped 1.8% versus September, in part due to the higher road fuel duty that came into force on 1 October.

The price of games, toys and hobbies also rose steeply, according to the ONS, up 1.9% on the month.

The news means the Bank of England continues to be posed with a policy dilemma.

CPI inflation remained more than one percentage point above the Bank’s 2% target, meaning governor Mervyn King will have to write another letter to the Chancellor of the Exchequer – his fourth this year – explaining the central bank’s failure to bring the rate down.

But with the new government having announced the biggest round of budget cuts since World War II, the Bank still expects the resulting slowdown in spending to bring inflation down over the next two years.

The Bank’s monetary policy committee voted earlier this month not to change its current policy position.

Mr King noted earlier this month that with the outlook for the world economy so uncertain, the Bank would be watching the latest economic data particularly closing before deciding on the right direction.

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