Inflation at 41-year high ahead of budget
UK inflation soared to a 41-year high of 11.1% last month as rocketing energy and food prices intensified the cost of living crisis, heaping pressure on the Chancellor ahead of his autumn Budget on Thursday.
October’s rate of Consumer Prices Index (CPI) inflation was worse than expected, hitting the highest rate since October 1981 and up from 10.1% in September.
Most economists had been expecting a rise to 10.7%.
The leap follows a near 130% surge in gas prices over the past year, with electricity rising by around 66%, while food inflation hit a record high of 16.5%, according to figures from the Office for National Statistics (ONS).
The jump in inflation comes despite the Government energy support, which has sought to limit annual household gas and electricity bills at around £2,500 a year.
Prime Minister Rishi Sunak said inflation was the “enemy we need to face down” but insisted the decisions in Thursday’s autumn statement would be “based on fairness, they will be based on compassion”.
But fears are mounting over the impact on already struggling households and businesses, with Chancellor Jeremy Hunt expected to unleash tax hikes and spending cuts to address a black hole in the nation’s finances.
Economists are hopeful that October’s inflation was the peak, predicting that CPI will gradually ease back after October, though it is unknown at this stage what energy support will be available after next April.
Mr Sunak said: “I am confident that when people see the set of decisions in the round, when the Chancellor has delivered his statement, they will see that we have strived incredibly hard to deliver fairness, to deliver compassion and to put the UK on a positive economic trajectory,” he said.
But Mr Hunt warned once again that “tough” decisions on tax and spending would be needed in Thursday’s autumn statement.
He said: “The aftershock of Covid and Putin’s invasion of Ukraine is driving up inflation in the UK and around the world.”
“It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances. That requires some tough but necessary decisions on tax and spending to help balance the books,” he added.
Experts predict the Bank will hike interest rates once again next month, with many experts pencilling in rise to 3.5% from 3%.
This would follow the three quarter point rise to 3% earlier this month - the biggest single increase since 1989 - as the Bank looks to rein in inflation.
Martin Beck, chief economic adviser to the EY Item Club, said rates are unlikely to rise as much as financial markets expect, predicting a peak of 4% or possibly lower early next year.
He said: “The EY Item Club thinks inflation has now peaked. The prospect of changes to the Energy Price Guarantee (EPG) - due to be announced in tomorrow’s autumn statement - means that it is hard to forecast the precise path of inflation over the next year.
“But, even in the unlikely event that the EPG were to be abandoned entirely, the contribution of energy prices would still fall back next year as large base effects come into play. Falling commodity prices suggest that food price inflation should also be close to its peak, while weaker activity should begin to ease capacity constraints and cool core inflation.”
The data showed families were hit by soaring costs of staple foods such as milk, cheese and eggs, while there were also hefty hikes across everyday items such as sugar, tomato ketchup and jam.
Frances O’grady, general secretary of the Trades Union Congress, said family budgets are “being shredded as the cost of food and energy skyrockets”.