Rising energy bills have pushed up the UK inflation rate to its highest level since April. It marks the sharpest month-on-month increase in the rate of inflation for two years.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation rose to 2.3% for October, from 1.7% in the previous month.

Inflation was higher than expected for the month, after economists had predicted a reading of 2.2%.

The rebound, which could increase pressure on the Bank of England to delay cuts to interest rates, comes after CPI inflation had dropped to a three-year-low in September.

The ONS said an increase in household energy costs particularly contributed to the latest rise in inflation.

In October, average household energy bills increased by £149 a year after regulator Ofgem raised the cap from £1,568 for a typical dual fuel household in England, Scotland and Wales to £1,717. This represented a roughly 10% rise.

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ONS chief economist Grant Fitzner said: “Inflation rose this month as the increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year.

“These were partially offset by falls in recreation and culture, including live music and theatre ticket price.

“The cost of raw materials for businesses continued to fall, once again driven by lower crude oil price.”

The data also showed that a rise in airfares also helped push inflation higher, with fares rising 6.6% in October compared with the previous month.

Transport inflation was however lower as a whole, as this was offset by a drop in motor fuel prices.

UK inflation has now returned back above the 2% target rate for inflation set by the Bank of England and the Government.

Treasury Chief Secretary Darren Jones says: “We know that families across Britain are still struggling with the cost of living. That is why the Budget last month focused on fixing the foundation of our economy so we can deliver change.

“But we know there is more to do.”

What happens when inflation rises?

High interest rates have been used by the Bank of England to put pressure on spending demand from consumer and businesses and help bring down inflation, after it soared as high as 11.1% two years ago.

Rate-setters on the Bank’s monetary policy committee (MPC) have since voted on two occasions to reduce rates after bringing inflation down to target levels earlier this year.

This could put some pressure on hopes that the central bank will continue to cut interest rates, after reducing the base rate to 4.75% earlier this month.

How does this impact mortgage rates?

This news may delay rate reduction further, as Peter Stimson, Head of Product at MPowered Mortgages, says: “Anyone who declared ‘mission accomplished’ in Britain’s battle against inflation last month spoke too soon.

“After spending one solitary month below the Bank of England’s 2% target, consumer inflation has leapt back into warning territory.

“The Bank had already predicted inflation would rise above the 2% threshold, but the Government’s ‘tax and spend’ Budget is likely to stoke inflation further in 2025."

But, to put this into context, 2.3%, annual CPI is barely a fifth of the 11.1% it reached in October 2022, after the disastrous Truss mini-budget. Albeit, it is a move in the wrong direction and wont help the Bank of England ratesetters, who are duty-bound to get inflation down to 2% and keep it there.

"With CPI already rising, inflation is once again a worry for anyone planning to buy their first home or remortgage in the coming months," says Peter.

“The return of inflationary pressure means the Bank of England is likely to adopt a ‘wait and see’ approach on any further Base Rate reductions, not just in December, but in the immediate months following as well.

“While this was to a large extent expected, it doesn’t offer any relief to mortgage lenders and is unlikely to allow them to reduce the interest rates they offer to new customers in the run up to Christmas."

Is inflation good or bad?

That really depends on whether you are looking to borrow, or to save - as a rule, higher rates boost savings accounts, while lower rates help borrowers.

Nathan Emerson, CEO at Propertymark, says: “It is disappointing to see that inflation has increased considering the overall trend throughout the year. 

“However, there are many national and global factors that impact the UK economy, hopefully inflation will better stabilise, and the UK economy should continue to adapt, no matter what happens in response to national and international events. 

“With housing playing a vital role in the growth of the economy, over time it would be positive to see interest rates drop to levels not seen since 2019, in order that more people can afford to enter the housing market for the first time, or make their next all-important home move.”