Inflation rises to 2.3% – business industry reaction

The Office for National Statistics (ONS) has published its latest Consumer Prices Index, which shows the rate of inflation rose to 2.3 per cent in the 12 months to October, up from 1.7 percent in September 2024.

The increase showed that core Inflation (excluding food and energy) rose to 3.3%, up from 3.2% in September. Month-on-month inflation rose by 0.6% in October, up from 0% in September.

Commenting n the figures, ONS Chief Economist Grant Fitzner said “Inflation rose this month as the increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year. These were partially offset by falls in recreation and culture, including live music and theatre ticket prices.

“The cost of raw materials for businesses continued to fall, once again driven by lower crude oil prices.”

Anna Leach, Chief Economist at the Institute of Directors, said “Inflation has moved up pretty much as expected, reflecting movements in the OfGem price cap. Elsewhere recent official data on wages has also come in in-line with the Bank of England’s forecasts. But economic conditions are evolving rapidly following a painful Budget for business, that significantly increases the costs of employment and injects inflationary pressure into a constrained economy. Inflation is now set to be higher for longer as firms pass through the impact of higher costs into higher prices, and as higher public spending over the next couple of years further generates inflationary pressures. Interest rates are likely to come down more slowly, adding to financing costs for both households and businesses, constraining consumption and investment.

“Unfortunately, while the recent Budget stabilised the public finances, it has undermined growth in the private sector, shattering business confidence and renewing inflationary pressures. Broader efforts to improve the environment for investment have been overwhelmed by distortionary tax raising measures. We will continue working with the government to improve the operating environment for business, for example, through pushing for tax simplification to move up the government priority list and engaging in the consultation process around workers’ rights.”

IEA Economics Fellow Julian Jessop said “UK inflation rebounded a little more than expected in October, to 2.3%, as a tick up in the ‘core’ measure added to the upward pressure from higher energy bills.

“However, the increase in the ‘core’ measure was largely due to higher airfares – an erratic component which the Monetary Policy Committee should look through. The Bank of England was also already expecting headline inflation to average 2.4% in the fourth quarter of this year when the MPC cut rates earlier this month.

“Nonetheless, today’s news will add to nervousness about the outlook for inflation in the first half of next year, when the main impact of the increases in taxes and other business costs in the Budget will kick in.

“The Bank expects the Budget measures to lift inflation above 2.5%, taking it further away from the MPC’s 2% target. But this increase should only be temporary and may not materialise at all, particularly if the main impact of the Budget is actually to undermine confidence and growth.

“In any event, the current official interest rate of 4.75% is still higher than it needs to be to continue bearing down on inflation, especially when the full effects of past monetary tightening have yet to feed through. If anything, the Bank of England should step up the pace of easing. But at the very least the MPC should stick to the current path of ‘gradual’ rate cuts.”

Alpesh Paleja, Interim Deputy Chief Economist, CBI, said “Inflation was always expected to pick up in October, but the increase was bigger than the Bank of England had expected. We’ll continue to see bumpier inflation over the coming months, as more base effects play out in the data. But the big picture should still remain one of headline inflation being much lower than this time a couple of years ago.

“Despite the upside surprise in today’s data, the Bank is still likely to continue cutting rates at a gradual pace going forward. However, renewed price pressures from the fiscal loosening in October’s Budget means that the CPI rate is likely to stay above the 2% target for longer than previously expected. Coupled with continued strength in services price inflation and wage growth, this all but rules out the prospect of a faster pace of rate cuts in the year ahead.”

Suren Thiru, ICAEW Economics Director said “These figures confirm a disappointing resurgence in inflation as the recent tailwind from lower energy costs turned into a headwind in October, following the increase in Ofgem’s price cap which drove a notable jump in household bills.

“Inflation should drift gradually higher from here with rising energy bills, the impact of the Budget and global trade frictions likely to keep the headline rate hovering above the Bank of England’s 2% target until well into 2025.

“While the slight uptick in services price pressures confirms that it remains a significant hurdle to sustainably maintain inflation below target, slowing wage growth and a weakening labour market should help put it on a more consistent downward trajectory.

“October’s marked rise in inflation makes a December interest rate more unlikely and concerns over renewed price pressures from the budget and international uncertainty may draw a more reluctant approach among rate setters to future policy loosening.”

David Bharier, Head of Research at British Chambers of Commerce (BCC) said “While inflation is down considerably from this time last year, the larger than expected uptick in October highlights the continuing price pressures in the economy. Electricity and gas costs have risen sharply, with households facing challenges as we head into winter.

“Our research shows that while concerns about inflation have been steadily declining, it remains a significant issue for many businesses.  SMEs are now deeply concerned about rising costs on the horizon next year. The combined impact of national insurance and living wage rises, and the Employment Rights Bill is likely to put strong pressure on labour costs. Ongoing geopolitical conflicts and a potential tariff war will also have impacts.

“To help mitigate cost pressures, the government should look to accelerate the permanent cuts in business rates for retail, hospitality and leisure properties – currently scheduled for 2026. Much also depends on the government’s strategies on industry, infrastructure and trade. We need these plans to deliver at pace and help drive forward business growth across the UK.”