As UK inflation hit double digits for the second time this year, investors are waiting to see how bold the Bank of England's next move will be.
The UK Consumer Prices Index rose to a rate of 10.1% according to 19 October data from the Office for National Statistics, reports Investment Week.
This was a reverse on the previous month when inflation dipped to 9.9%, but this was only a temporary blip as economists were already forecasting a forthcoming rise as higher prices lingered.
UK inflation rises to 10.1% in September
Experts said all eyes were now on how the government and Bank of England would react to the inflation news, with interest rates expected to rise further next month.
"The inflation outlook suggests that the Bank could go big at its next meeting and hike rates by 75 or even 100 basis points to 3-3.25%," said Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank.
"Looking further ahead, we think that the unfolding recession will prevent the Bank from maintaining that pace."
Hugh Gimber, global market strategist at JP Morgan Asset Management, agreed: "Rate hikes will be the primary tool to tighten monetary policy, with a 75 basis point increase the bare minimum that will be necessary when the Monetary Policy Committee next meets on 3 November".
Commentators explained that the inflation data was highly indicative of pricing pressure on the public spreading to non-discretionary spending items.
Myron Jobson, senior personal finance analyst at interactive investor, said that food and non-alcoholic beverages, up from 13.1% in August, are types of inflation that "can be even stickier because consumers are resigned to paying it as they form part of essential".
These factors add weight to housing and household services, which Jobson identified as "the biggest contributor to the annual CPI rate in September", along with occupiers' housing costs, private rents, electricity and gas and other fuels.
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Looking ahead, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that as many consumers, households and businesses are "already feeling the burn of higher borrowing costs", non-essential spending and lower demand for goods and services would likely freeze economic growth.
She added: "With Trussenomics tax cuts reduced to a pile of dying embers, they no longer risk re-igniting the inflationary flames."
Some commentators believed these events could see the Treasury and Bank of England to join forces in an attempt to restore confidence in the UK market and economy.
Jeremy Batstone-Carr, European strategist at Raymond James, called for a "clear, considered, and calmly delivered fiscal and monetary policy", that "pours cold water" on inflationary pressures while maintaining economic growth.
He said: "The government's utility price freeze is a step in the right direction and will take the sting out of energy bills for millions of households this winter. However, by putting pounds back in the pockets of all consumers, some of which are also seeing strong wage growth, a blanket freeze always threatened to indirectly lead to demand-pull inflation."
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Assurance in delivering growth during the market upheaval was promised by the chancellor himself on Monday (17 October) during his parliamentary address, where he pledged "help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone".
Hunt said: "We have acted decisively to protect households and businesses from significant rises in their energy bills this winter, with the government's energy price guarantee holding down peak inflation."
The upcoming winter months will see a growing appetite for gas supplies and more uncertainty ahead for the general public, small- and medium-sized enterprises and investors. Therefore, restoring confidence during economic volatility remains an industry focal point.
Andrew Aldridge, partner at Deepbridge Capital, said: "Venture capital [could be] an alternative investment that offers steady long-term growth opportunities, with unrivalled tax reliefs available via the Enterprise Investment Scheme".
Nigel Green, CEO of deVere Group, added the "highly unusual financial and economic situation is a reminder that financial history teaches investors to review their portfolios regularly, remain diversified and do not try and ‘time the market'", a viewpoint shared by YOU Asset Management CEO Derrick Dunne, who said patience and diversification is "the best antidote to uncertainty."
