TSX gains after CPI shows US inflation rose 3%
UK inflation’s unexpected persistence in September has forced markets to reassess how quickly the Bank of England might ease monetary policy. The data showed consumer prices rising 3.8% year over year, unchanged from August and almost double the 2% target. For traders who had been pricing in a steady pace of quarter-point cuts, the numbers signal a pause in the easing cycle and a more uncertain near-term outlook for growth and rates.
The inflation print, while below the Bank’s forecast of 4%, underscores the stubbornness of underlying price pressures. Food and services inflation remain elevated, reflecting wage resilience and a still-tight labor market. Despite signs of softening consumer demand and falling energy costs, the pace of disinflation has stalled. This combination leaves policymakers balancing two risks: keeping policy too tight for too long and damaging growth, or cutting too soon and reigniting inflationary momentum.
Financial markets responded with a swift repricing along the curve. 2-year gilt yields rose about 6 basis points to 4.32% as traders trimmed bets on a November rate cut. 10-year yields edged 3 bps higher to 4.17%, flattening the curve marginally. Sterling firmed modestly, with GBP/USD up 0.2% to 1.2780, reflecting reduced expectations for rapid monetary easing. In equities, the FTSE 100 slipped 0.3% in early trading as rate-sensitive real estate and utility shares weakened, while bank stocks gained on the prospect of sustained margins.
The reaction shows how finely balanced sentiment is. For much of 2025, the Bank of England has followed a predictable rhythm—cutting borrowing costs every three months to cushion an economy flirting with stagnation. The latest figures disrupt that narrative. Inflation that remains nearly twice the target suggests that any further easing before year-end would require clear evidence of decelerating wage growth or a sharper downturn in activity.
In the near term, investors will watch October’s labor-market report and the next CPI release due in mid-November. A downside surprise could revive expectations for a December cut. Conversely, another sticky print would likely push the first move into early 2026. The Bank’s November 6 meeting now looks set to be a holding operation, with officials emphasizing data dependence rather than a preset path.
For portfolios, the opportunity lies in the divergence between front-end and long-end pricing. Gilt investors could favor steepener trades if disinflation resumes, while equity allocators may find relative value in U.K. financials over defensives. The key risk remains a policy misstep that tightens conditions into a slowdown. A clear signal that inflation is sustainably trending toward 2% would be the catalyst to shift positioning more decisively into rate-sensitive assets. Until then, stability rather than stimulus is the Bank’s most credible course.