Just before Finance Minister Jeremy Hunt proposes “strong but needed” tax hikes and budget cuts to manage price growth, data indicated that rising household energy bills and food costs have driven British inflation to a 41-year high.
According to the Office for National Statistics, consumer prices increased 11.1% in the 12 months ending in October, which is a significant increase from the 10.1% increase seen in September and the highest rate since October 1981.
In a survey, economists predicted that inflation would increase to 10.7%; many of them believe that inflation is likely to peak right now.
The ONS stated if the government had not stepped in to cap the cost of family energy bills at 2,500 pounds ($2,960) a year on average, inflation would have risen to about 13.8% in October.
Hunt, who is scheduled to present a new budget on Thursday, responded to the findings by stating that “difficult but necessary” choices were needed to address growing prices.
He stated in a statement that managing the country’s finances wisely is a top priority to assist the Bank of England in its mission to bring inflation back to goal.
Analysts claimed the increase kept the pressure on the BoE to continue raising interest rates, but the scope of the austerity measures that will be outlined on Thursday may imply that borrowing costs will need to increase less.
Ellie Henderson said an economist with Investec, the UK is in a relatively unusual scenario where the government is planning a comprehensive program of steps to aid in rebalancing its budget.
The projected level of budgetary tightening will undoubtedly slow economic growth and, as a result, should lower inflation. This will allow the Bank of England to tighten policy more slowly.
However, according to Mike Bell, global market strategist at the J.P. Morgan Assets Management, Wednesday’s statistics revealed that inflation pressures brought on by the tight labour market had likely been underestimated. The BoE would therefore likely increase rates from the current level of 3.0% to a maximum of 4.5%.
These figures uncomfortably contrast with the Bank of England’s statement. Bell said when it claimed that only slightly higher rates would be required to return inflation up to its 2% target.
In its predictions released this month, the BoE expected inflation would be 10.9% in October.
According to the ONS, prices for food and non-alcoholic beverages rose at the quickest rate since 1977 in the 12 months to October, which particularly hurt those with the lowest incomes.
The results showed that the price of milk has climbed by over 50% in the last year. Butter has gone up in price by 30%, cheese by 27%, and pasta by 34%.
Contrary to the increase in the headline figure, core inflation, which does not include volatile items like food and energy, remained constant at 6.5%.
ONS saw the households with lower incomes, whose expenditure on food and energy is more significant, experienced an inflation rate of 11.9% while households with higher incomes saw a rate of 10.5%.
Some of Britain’s poorest towns and localities, according to the think tank Center for Cities, are experiencing the greatest effective inflation rates.
The town of Burnley in northern England, where some retirees skip meals to make ends meet, leads the chart. Over the past year, consumer prices there have increased by 13%.
Data on producer prices indicated that inflation pressure was still present but also suggested a potential downturn.
Although the rate of growth in energy and raw material prices for manufacturers was the smallest since March, it was still very high by historical standards at 19.2%.
In the year leading up to October, factory prices increased by 14.8%, which was the smallest growth since April.