Surprise rise in UK inflation: reaction

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UK consumer price inflation jumped much more sharply than expected in October, driven by a rise in university tuition fees and higher food prices.

ANDREW GOODWIN, E&Y ITEM CLUB

This is a very nasty surprise. We had expected inflation to pick up in October because of the rise in tuition fees and food prices, but the scale of the increase was surprisingly large.

Unfortunately we cannot write this off as a one-off as the tuition fees effect will now be in the index until next year. And with the impact of the recent increases in domestic energy bills set to hit the index next month, it looks as if inflation is going to remain in the 2.5-3pc range for the remainder of the year.

But further out we are still confident that inflation will slow back towards the target. And because of the causes of the October increase, it could be argued that these figures aren’t quite as bad for household finances as they may first appear. They represent a significant squeeze for those affected directly by the tuition fee increase, however the vast majority of people will not have been impacted.

However, even allowing for this, it is clear that the influence of higher food and energy prices will be felt by consumers. The easing of inflationary pressures throughout the summer had translated into a stronger consumer performance, but there is a danger that this will stutter as we move into winter, adding another reason to be concerned about the Q4 growth figures.

DAVID TINSLEY, BNP PARIBAS (Other OTC: BNPQF.PK - news)

Even when you allow for the rise in education fees, it still appears that price pressures have firmed up a bit. One of the other interesting things about this release, is that it was quite early in terms of price collection date so the utility bill rise that we thought might be in the October data wasn't in there, so it will be in next month's, so it also suggests we're going to get a firmer headline rate of inflation over the next couple of months as well.

The bottom line is that I think more QE from the Bank of England is now off the table unless circumstances change or deteriorate.

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ROSS WALKER, RBS (LSE: RBS.L - news)

They are a little bit disappointing, higher than expected, above the range. Ironically, we had the tuition fee increases that are roughly what we expected and the surprise for us was the extent of the food price increase and also to some extent the transportation numbers.

Half the rise is an administered price increase if you like, it reflects a legislative change in terms of university fees ... I don't think it's a game changer, I don't think it's going to alter the policy outlook, they (the Bank of England) seem to be pausing on QE or further loosening anyway.

ALAN CLARKE, SCOTIABANK

I'm a little surprised. We knew university tuition hikes were coming but the extent to which this is reflected in the data is dramatically bigger than when we've had increases in the past.

Where do we go from here? Onwards and upwards. Utility bill increases are on their way. We've also got the effect of the US drought and increased food prices to factor in. I don't think we're going to get anything like the 2 per cent inflation target.

JAMES KNIGHTLEY, ING

We expect to see further increases in the annual rate of inflation given that agriculture prices have been rising sharply while utility providers have announced steep rises in gas and electricity prices, the majority of which will come into effect in early December. As a result, we could see inflation moving back up to 3pc by January.

Nonetheless, we expect inflation to drift lower again thereafter. Sterling strength should help limit the threat of inflation from overseas while falling inflation expectations and subdued wage growth means that domestically generated inflation pressures should remain benign.

With global growth set to stay modest we also suspect that upside pressure on commodity prices will subside while corporate pricing power remains limited.

So with medium-term inflation prospects likely to remain non-threatening, the Bank of England can continue to offer policy stimulus ... We expect the Bank of England to expand its Asset Purchase Facility again, with the first quarter of 2013 our favoured timing point, but the tone of tomorrow's BoE's Inflation Report press conference will allow us to firm up our expectations for the timing a little better.

TREASURY

It is disappointing that inflation increased in October. Inflation remains much lower than its peak of 5.2 per cent last September.