ITV News Correspondent Libby Wiener reports on rising inflation as the looming budget that will see the government raise taxes and cut spending
You could be forgiven for thinking the Bank of England has lost control of inflation.
The Bank’s job is to keep the annual rate at which prices increase anchored to 2%. In October, prices in the UK rose by 2% in a single month.
The headline rate of inflation now stands at 11.1% - five times the Bank’s target rate, the highest level since 1981 and slightly higher than the 10.9% that Bank was forecasting only two weeks ago.
Price rises of this scale and intensity are astonishing and leave everyone feeling worse off but in many parts of the UK they will be causing unimaginable distress.
ITV News Economics Editor Joel Hills reports as inflation hits a 41-year high.
Gas and electricity prices jumped by 25% in October as a result of the rise in the OFGEM price cap from £1,971 to £2,500 a year.
The government’s Energy Price Guarantee (EPG) took the edge off the pain but the average domestic energy bill has almost doubled in the space of a year. Without the taxpayer subsidy, the ONS calculates the headline rate of inflation would have been 13.1%.
Food, another bare essential, rose at an annual rate of 16.5% last month as supermarkets continued to pass on their rising costs.
This is the highest rate ever recorded. For those on the lowest incomes bread, cereal, meat, fish, milk, cheese, eggs and vegetables have become horrifically expensive.
Prices are rising faster than pay, faster than the income from pensions and benefits.
In his Autumn statement tomorrow, the chancellor will almost certainly commit to uprating benefits in line with inflation from next April but goodness knows how some households will muddle through until then.
The Joseph Rowntree Foundation predicts “more stories of people selling their possessions, or borrowing money at punishing interest rates, just to afford essentials”.
The here and now is cheerless, but there are reasons to be hopeful.
The market price of oil and some food commodities has dipped a little. The price of petrol fell 2.9p a litre in October (although diesel rose 2.3p a litre), second hand cars are cheaper than a year ago, there are signs that the costs facing UK businesses are rising more slowly.
The Bank of England believes the inflation has peaked and will start to fall sharply from next summer.
The Bank believes in “Immaculate Disinflation” - that the surges in the price of energy and imported goods (which have been cause by the war in Ukraine and the pandemic) will fall away and, combined with the prolonged recession we now face, will be enough to push inflation down.
What does happens next depends to some extent on the decisions the Chancellor makes tomorrow.
Jeremy Hunt is set to announce tax rises and spending cuts of perhaps £55 billion (2% of GDP) in his Autumn Statement. Depending on how they are structured, they could have the effect of further choking disposable incomes.
The design of the EPG beyond April will also determine whether inflation has peaked.
There are reasons to be concerned that high inflation may prove persistent.
“Core” inflation is running a level which suggests big prices rises are widespread.
“Services” inflation rose again in October to 6.3%. The UK doesn’t import many services so this looks like a pretty strong indication that people are seeking and obtaining large pay rises to compensate for a sharp fall in their living standards.
The Bank worries such pay rises are self-defeating as they will be financed by another round of price increases.
The markets are betting that another hefty interest rise is imminent. Bank Rate - which was 0.1% a year ago and now stands at 3% - is expected to reach 3.5% by the end of the year and 4.5% next summer.
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