U.K. inflation unexpectedly held steady at a five-year high last month, according to official figures published Tuesday, putting pressure on the pound as investors bet that consumer price rises may have peaked in the cooling post-Brexit economy.

Annual inflation was tabbed at 3% in October, the Office for National Statistics said, a figure that matched the final reading for September but missed analysts' forecasts of a 3.1% acceleration. The ONS said lower fuel costs and a slowing housing market contributed to the modestly weaker-than-expected reading. 

"Inflation remains at a five year high with rising food prices offset by a fall in the cost of fuel," said ONS statistician Mike Prestwood. "The rise in the cost of raw materials and goods leaving factories both slowed, with crude oil and petroleum prices both increasing less than at this time last year.

"House price growth increased in September, with property prices in the North West and South West of England increasing most strongly. However, growth slowed again in London with the housing market in the capital continuing to cool," he added.

The pound slipped around 0.21% immediately following the release to trade at 1.3087 against the U.S. dollar by 09:45 London time as traders bet that the Bank of England will not need to accelerate its tightening schedule as the economy continues to sputter as the country negotiates its exit from the European Union.

The currency has also been pressured by increasing speculation that ruling Conservative party lawmakers are preparing a leadership challenge against Prime Minister Theresa May.

The Sunday Times newspaper said this weekend that as many as 40 Conservative MPs signed a letter of "no confidence" against the Prime Minster, a number that falls just 8 shy of the minimum needed to launch a formal leadership challenge within the party. The move follows a series of mis-steps from May, including the resignation of two cabinet members and stalled Brexit talks, that have caused many to question her ability to lead a fractured party -- and government -- as negotiations to leave the European Union move toward the next crucial phase.

"Sterling has recently been weaker as the May's leadership may be in an existential crisis, making the UK's negotiating position terribly fragile while the EU makes tough demands," said Saxo Bank's head of FX strategy John Hardy. "Still, it is hard to see a strong sustained directional move in GBP until we get more Brexit news - good or bad."

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