U.K. annual inflation fell to 4.6% in October, giving the Bank of England the confirmation it needed that its actions in raising interest rates were having an effect, money managers said.
The Office for National Statistics said on Nov. 15 that the consumer price index rose by 4.6% in the 12 months to October, down from 6.7% in September and far below the 11.1% peak in October 2022. The BOE paused interest-rate hikes at 5.25% at recent meetings, having completed 14 consecutive rises since the end of 2021.
The BOE "really did need some confirmation that they are on the correct course of action and they got that this morning with the October inflation numbers," said James Lynch, fixed income investment manager at Aegon Asset Management, in an emailed comment.
The bank had forecast CPI of 4.8% and had been expecting CPI services data to come in at 6.9%, but it was revealed as 6.6%, Lynch said. The majority of the big downward move was attributed to a fall in the energy price cap.
Lynch expects annual inflation rates to continue to fall into next year, citing similar figures in the U.S. (3.2%) and eurozone (2.9%). "The pausing of policy rates, sluggish GDP growth and inflation falling faster than expected is a pretty good backdrop for the gilt market," he said.
While managers said the drop was welcome, they reiterated that it's still to early to expect the BOE to begin cutting rates.
"Today's drop in CPI inflation is another data point which supports the idea that rates don't need to go higher," said Emma Mogford, fund manager, Premier Miton Monthly Income Fund, in an emailed comment. "However, with core inflation still high, I don't think we should expect a rate cut anytime soon. The fall in U.K. inflation, in line with other countries, will be positive for U.K. equities."
