UK inflation rebounds more than expected in October, "pouring cold water" on the prospects of a rate cut.

In October, the inflation in the UK rebounded more than expected, exceeding the Bank of England's target level of 2%, weakening the prospect of further interest rate cuts in the coming months. Data released by the UK Office for National Statistics on Wednesday showed that due to the surge in energy prices, the Consumer Price Index (CPI) rose by 2.3% year-on-year in October, higher than 1.7% in September and also higher than the market expectation of 2.2%. The services sector CPI increased from 4.9% in September to 5%, consistent with the Bank of England's forecast. Bank of England officials are closely monitoring service sector inflation for signs of domestic price pressures. Following the release of inflation data, traders further reduced their bets on future interest rate cuts by the Bank of England in the coming months. The market currently expects only two more rate cuts by 2025, with a 40% probability of three rate cuts. Earlier this month, the market was fully pricing in three more rate cuts. The pound rose after the data was released. The pound against the US dollar rose by 0.2% to 1.2702, further rebounding from last week's six-month low. James Smith, research director at the think tank Resolution Foundation, called it "a disappointing inflation report." He said, "This makes us doubt that the Bank of England will cut rates quickly. Inflation remains quite stubborn." Earlier this month, the Bank of England cut rates as planned by 25 basis points, initiating the second monetary easing of the year, but officials hinted at a "gradual" easing strategy in the future. Bank of England officials stated that the first budget of the UK Labour Party government and Donald Trump's victory in the US election pose a dual inflation threat, which will make them cautious about policy, regardless of future data in the coming months. Bank of England Governor Bailey pointed out to parliamentarians on Tuesday that high service sector inflation and "many risks" exist, so he took a cautious stance. Bailey said regarding the impact of employer wage tax increases: "Gradual removal of monetary policy constraints will help us observe how the situation unfolds and the other risks facing the inflation outlook." The Bank of England believes that Chancellor Rishi's fiscal plans may raise business costs and increase borrowing for public investment, exacerbating inflation. Trump's tariff policy brings uncertainty to the global economy, another reason for the Bank of England to remain cautious. Luke Bartholomew, Deputy Chief Economist at Abrdn, said, "Due to the budget stimulating economic growth and inflation next year, the Bank of England has no reason to deviate from its gradual easing plan in the short term."