Liam Halligan: Is a December interest rates rise inevitable?

Inflation hit 4.2 percent in October, with prices rising at their fastest pace since October 2011, up from 3.1 per cent the month before.

UK inflation is forecast to hit its highest rate in a decade in October as supply chain disruptions, rising energy prices and a tight labour market push the cost of consumer goods sharply higher.

As winter takes hold, and the nights draw in, the cost of living is soaring – and the signs are prices will continue to rise. Inflation is likely to increase from 4.2 per cent in October to around 4.5 percent when figures for this month are released, before rising to 5 percent early next year.

So inflation is already more than double the Bank of England’s 2 per cent target and set to go up even more.

It is now as near to a certainty as you can have in economics that the Bank’s Monetary Policy Committee of economists – the MPC - will soon be raising interest rates from the ultra-low emergency level of 0.1 per cent.

Many thought that would happen earlier this month, but the MPC voted 7-2 to keep rates on hold. That happened despite weeks of speculation – arguably encouraged by Bank of England Governor Andrew Bailey and other MPC members – that interest rates were about to rise.

Markets don’t like surprises. When no rate rise happened, the pound slumped as traders sold the pound. Unless the Bank regains its credibility, financial markets will likely become more volatile, causing economic shock waves at a time when our economy is struggling really to get into gear.

Inflation is by no means just a UK issues – eurozone inflation just hit 4.1 percent, a 13-year high and US inflation is even more elevated, at 6.2 per cent.

But having previously dismissed UK inflation as “transitory”, then spreading confusion, the Bank of England does have a particularly credibility issue that needs quickly to be addressed.

So as price pressures spiral and the MPC struggles to regain its poise, is a December interest rate rise now inevitable?