Latest inflation data will be cause for concern for rate-setters

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Inflation is rising faster than expected, with the headline rate hitting 2.3% in October, higher than the 2.2% forecast by economists and above the Bank of England's 2% target.

How worried should we be?

These figures are a world away from the double-digit levels of inflation we experienced in 2022, when the index peaked at 11.1%.

Money blog: Follow live reaction to inflation news

Inflation has broadly been coming down as the Bank has ratcheted up interest rates. Economists expect inflation to hover at around 2% over the next few years.

However, Labour's budget has created inflation jitters.

The government is injecting a big fiscal stimulus into the economy in the form of higher government spending.

The rise in employers' national insurance contributions could also lead to higher prices. This has raised the inflation forecasts and likely slowed the pace of interest rate cuts.

Market expectations for an interest rate cut in December have now fallen to just 16%.

While current forecasts suggest inflation is unlikely to spiral out of control, members of the Monetary Policy Committee (MPC) are likely to proceed with caution.

As the past few years have demonstrated, inflation is temperamental and can quickly move against policymakers.

As Andy Haldane, the Bank's former chief economist, once warned: "The inflation tiger is never dead."

The MPC won't want to be complacent and not just because the headline rate of inflation rose above expectations.

The Bank looks very closely at some other indicators, including inflation in the dominant services sector. This rose from 4.9% to 5%.

Wages are also still growing too quickly for the Bank's comfort. All of this will give the MPC some cause for concern, meaning they will take a cautious approach.

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