What's going on?

Data out on Wednesday showed UK inflation hit its highest in nearly a decade last month, meaning the country�s central bank might only have one play left to make.

What does this mean?

The prices Brits were paying in October climbed by a higher-than-expected 4.2% compared to the year before � up from September�s 3.1%. High energy bills were a big contributor, with the cost of gas and electricity rising by nearly a quarter in the same period. But even the �core� inflation measure � which excludes energy and food costs � jumped from 2.9% to 3.4%, suggesting traditionally volatile expenses aren�t the only ones to blame.

Things aren�t slowing down either: Wednesday�s data also showed that the costs manufacturers are paying for materials rose at their fastest in at least 10 years, which could encourage companies to charge customers even more. The Bank of England (BoE) certainly seems to think so: it said earlier this month that it�s expecting inflation to hit 5% by April next year.

Why should I care?

For markets: Sterling performance.
Wednesday�s 4.2% inflation is a far cry from the BoE�s 2% target, which has got investors betting that the central bank will finally raise interest rates next month. That�d make the British pound more appealing to international savers and investors, and so will this: the European Central Bank (ECB) recently said it�s unlikely to hike its own rates even in 2022. That might be why sterling hit its highest level relative to the euro since early 2020 on Wednesday.

The bigger picture: Easy does it.
Europe�s low interest rates mean low returns from the region�s government bonds, which has pushed investors to look for gains in riskier markets � think expensive real estate, junk bonds, crypto. But the ECB had a warning for investors on Wednesday: the central bank said those markets could be susceptible to big drops when interest rates do eventually rise.