BOE Sees Increasing Pressure as UK Inflation Touches 10.1%

• September had UK inflation hitting the double-digit region, soaring at 10.1%.
• The BOE seems trapped as going massive on rate pressures gilts.
• Food prices contributed to the increased inflation.

It could be challenging to explain what the United Kingdom has experienced over the last few weeks. The mini-budget announcement, targeted at reducing taxes, catalyzed an earthquake within the United Kingdom bond markets.

Consequently, the Bank of England intervened by purchasing guilts – government bonds- as it readied to remove bonds from the balance sheet. Meanwhile, the mini-budget saw a reverse after the finance minister sacking in the following few weeks.

However, the events didn’t go unrecognized. Finance markets reacted to the government’s move by propelling yields high while plunging the pound. Meanwhile, Wednesday’s economic data showed the United Kingdom inflation hit the double-digit region, with the September figure at 10.1%.

Meanwhile, worries exist due to the surge speed and the overall spread among goods & services classes. Moreover, the weak pound doesn’t help, meaning the Bank of England should act.

The central bank finds itself inside a challenging case since going massive during the November meeting would dent gilts. Remember, higher rates catalyze soaring yields, and the bond price plummets.

UK Inflation: September Report

The Core CPI and the CPI exceeded market anticipation. The CPI year-on-year hit 10.1%, higher than the previous 9.9% and the estimated 10.0%. Moreover, the Core CPI surged to 6.5% Y/Y after the last 6.3% and forecasted 6.4%.

Food prices primarily triggered the inflation surge. Moreover, a weak pound welcomes increased import prices – another dynamic that triggers inflation. Precisely, the peak wasn’t visible. That means the Bank of England should execute a massive rate move.

The recent reactions in the bond market brought concerns are something might break amid bolder BOE interest rate action. Meanwhile, GBP traders should consider possible volatility surges during the November BOE meeting.

The Bank of England remains in a challenging spot to accomplish its price stability command, considering the recent data and market outlook. What are your thoughts about the United Kingdom inflation? You can use the comment section below for your comments.