"Given market sentiment, it appears that Carney will have to follow through and raise rates in November to maintain credibility."
CPI inflation rose to 3.0% in September, up from 2.7% in August, according to ONS data released this morning.
CPIH, which the ONS are now using as their headline measure and which includes owner occupiers’ housing costs, rose to 2.8% from 2.7% in August.
Both measures of inflation are now at the highest rates recorded since March 2012.
The main contributors to the increase in the rate were rising prices for food and recreational goods, along with transport costs, which fell by less than they did a year ago.
Thomas Wells, manager of the S&W Global Inflation-Linked Bond Fund, says he now expects the Bank of England to raise rates in November to "maintain credibility".
Wells said: “CPI inflation remains elevated and we would expect this to remain the case for the remainder of 2017. Inflation should begin to moderate in the first half of 2018, as the impact of sterling depreciation following the Brexit vote drops out of the numbers.
“Most economists would regard this as ‘bad’ inflation because it has been driven by rising input costs and unfavourable FX impacts, rather than strong consumer demand. Inflation has remained more persistent than the Bank of England had first hoped, causing Mark Carney to adopt a significantly more hawkish tone in the run up to the November MPC meeting. However, these hawkish comments have themselves encouraged sterling to strengthen, helping to stem further FX-related inflation without threatening the already weak GDP numbers.
“Given market sentiment, it appears that Carney will have to follow through and raise rates in November to maintain credibility. Any accompanying commentary will be closely scrutinised to assess the likelihood of further hikes but given the fragility of current financial conditions, we deem November sparking the start of an aggressive tightening cycle as highly unlikely.”
Matthew Brittain, Investment Analyst at Sanlam UK, added: “Our view is that current levels of inflation are nothing to worry about – it’s simply a case of businesses passing on higher import costs, brought about by a fall in sterling, to their customers. Over the coming months, our expectation is that it will start to fall back to 2%, the level at which the Bank of England is mandated to maintain it.
"This view is not necessarily shared by the Bank of England, and today’s announcement makes an interest rate rise in November a near certainty as the Monetary Policy Committee takes action show they are keeping inflation under control.”