The inflation figure for October is expected to exceed the Bank of England’s 2% target.
Markets expect that inflation will rise from 1.7% in September to between 2% and 2.2% in October when the Office for National Statistics data is released on 20 November.
The rise is said to be driven by higher household energy bills.
In early November, the BoE cut the base rate by 0.25% from 5% to 4.75%. The Monetary Policy Committee voted in an 8 to 1 split in favour of cutting the rate.
Catherine Mann was the sole vote against cutting borrowing costs at a meeting of the BoE’s rate-setting committee.
Last week, Mann warned that high energy prices may push up inflation and slow pace of rate cuts, suggesting that fuel prices were more likely to rise than fall over the coming years.
Canada Life Asset Management investor director Steve Matthews says: “While this is the first inflation release since the Budget, the impact of additional fiscal stimulus is unlikely to be reflected for several months.”
“Given this, and with the BoE emphasising that they are in no hurry to implement further rate cuts this year, we expect interest rates to remain steady in December. Further cuts are then expected in February and then on a quarterly basis, in line with inflation data.
“Looking ahead, the BoE will also be closely monitoring Trump’s ‘America First’ policies, as the introduction of higher tariffs could have a global knock-on effect, potentially driving inflation higher worldwide in 2025.”
BoE governor Andrew Bailey admitted in October that inflation had fallen “faster than expected”.
The head of the central bank said: “Disinflation is happening, I think faster than we expected it to, but we still have genuine question marks about whether there have been some structural changes in the economy.”
EHF Mortgages managing director Justin Moy believes the predicted increase in October inflation figures will “conclude rate cuts for 2024”.
Moy predicts that “the base rate will remain at 4.75% for the foreseeable future, and those swap rates will probably continue to tick up slightly every week”.
He adds: “While it is expected for inflation to rise above 2% (on November 20), it will give the BoE enough ammunition not to cut rates early 2025, as we see the effect of the change in US presidency at the end of January.”
“Message to mortgage borrowers remains to work as soon as possible on your mortgage and next deal, reserving what you can just in case of further increases in the money markets.”
Black & White Bridging director of business development Danny Power suggests the mortgage market will feel the “ripple effects” of tomorrow’s expected rise in inflation.
Power says: “Borrowers and lenders alike are facing a challenging landscape, particularly in light of the lacklustre measures outlined in Labour’s Budget. Without meaningful support or incentives, the strain on affordability is only set to grow.”
Phoebus Software chief sales and marketing officer Richard Pike adds: “It’s probably still too soon to see the full impact of this month’s interest rate cut, plus the Autumn Budget as well as Ofgem’s latest energy price cap.”
“But with a very low 1.7% inflation rate in September, the likelihood is that inflation will rise tomorrow as economic factors filter through. It may, though, stay just under the 2% target, with further increases likely into 2025.”
Meanwhile, L&C Mortgages associate director David Hollingworth says: “The Bank itself has been clear that it expects inflation to rise again so that in itself shouldn’t cause any shockwaves.”
“However, if the numbers are higher than the market predicted, that could further underline the increased expectation for interest rates to remain higher for longer. If it’s a nasty shock that could add further momentum to the recent hike in fixed rates.”
“Of course, if inflation is lower than anticipated that could prove to be well received and help take some of the pressure off fixed rates which continue to come and go at pace.”
While inflation is expected to only edge over the BoE target, Movera chief executive officer Nick Hale suggests this increase alone “won’t heavily influence December’s MPC decision”.
“However, with the economy barely moving over the last quarter and housing activity subdued, a base rate cut early in the New Year could provide much-needed momentum. For now, though, the BoE’s cautious wait-and-see stance is likely to continue.”