The UK’s inflation rate hit a new 41-year high in October, accelerating to 11.1% on rising energy and food prices.
The Office for National Statistics said the rate rose 10.1% in September, putting inflation at its highest level since October 1981. Economists polled by Reuters had expected a rate of 10.7% .
October’s surprisingly high price rise presents a difficult backdrop for Chancellor Jeremy Hunt’s autumn statement on Thursday and suggests the Bank of England will need to raise interest rates further to bring inflation back to its 2% target . The BoE is expected to raise rates another 50 basis points in December from the current rate of 3%.
In October, the sharp rise in the cost of living was caused by rising gas, electricity and food prices despite the government’s energy price guarantee, which capped gas bills and electricity at £2,500 for a household using both fuels on average.
Food price inflation has risen sharply to 16.5% on an annual basis, the highest in 45 years, according to the ONS.
Grant Fitzner, ONS chief economist, said: ‘Over the past year gas prices have soared almost 130% while electricity has risen around 66%.
The only relatively bright spot in the numbers was that core inflation, excluding food and energy, held steady at 6.5% in October, the same rate as in September. Economists had hoped, however, that this measure would drop to 6.4% in October.
Hunt blamed Russia’s war in Ukraine for the worsening cost-of-living crisis, but pledged to make ‘tough but necessary tax and spending decisions’ in the statement. fall to help reduce inflation.
“We cannot have long-term sustainable growth with high inflation. Tomorrow I will present a plan to reduce debt, provide stability and lower inflation while protecting the most vulnerable,” Hunt said.
The UK’s inflation rate was similar to that of many other G7 countries and is no longer the highest – Italy’s rate hit 12.8% in October.
Economists thought Britain’s rate may have peaked and could fall in the coming months, although they warned any declines were likely to be slow.
Yael Selfin, chief economist at KPMG UK, said annual price increases had likely peaked.
“The combination of weaker growth and the waning impact of global supply shocks could lead to an easing of price pressures. Nevertheless, inflation could remain above the 2 percent target. cent from the Bank of England until the middle of 2024,” she said.
Mike Bell, global market strategist at JPMorgan Asset Management, said the rise in inflation to 11% did not match the BoE’s message earlier this month that interest rates should rise only slightly from at the current rate of 3% to bring inflation. down.
“Until it is clear that weaker activity is starting to weigh on wage demands, we believe the Bank of England will need to keep rising. We see UK rates peaking at 4.5%,” did he declare.
The main moderating force in the inflation figures was a drop in fuel inflation in October, where prices were 22.2% higher than a year earlier, down from a rate of 26.5% inflation in September.
But the statistics agency noted that petrol prices fell by 2.9 pa liter during the month while diesel prices rose by 2.3 pa liter. This highly unusual divergence, he said, was the largest on record and speculated that “it could be the consequence of an increase in global demand for diesel for power generation”.