In October, the rate of inflation increases significantly more than anticipated by economists, putting pressure on the Bank of England to maintain the rate of an interest rate increase to curb economic demand.
The latest increase in energy costs has contributed to a greater-than-anticipated increase in the rate of inflation, which reached a 41-year high of 11.1% last month.
The Office for National Statistics (ONS) reported the increase, up from 10.1% in September, as the cost of lighting and heating for homes continued to rise despite the government’s energy price guarantee, which limits wholesale charges for gas and electricity.
Food was cited as the second-largest contributor to inflationary pressure in October, rising at the quickest annual rate since 1977.
The ONS estimated that the inflation rate of 11.1% as measured by the consumer price index (CPI) was the highest since October 1981.
According to the report, prices increased as much between September and October 2022 as they did between July 2021 and July 2022 combined.
Economists polled by Reuters had predicted that the rate of inflation would rise to 10.7%, which is nearly double the wage growth rate.
The primary cause of the cost of living crisis has been soaring energy prices, primarily as a result of Russia’s invasion of Ukraine in February, which drove up the price of many commodities, including wheat, and their production costs.
Currently, wholesale energy prices are below their wartime peaks, giving rise to optimism that the worst of inflation has passed.
There is still a lack of clarity regarding the support for energy bills beyond April when the price guarantee will be evaluated. On Thursday, the chancellor will deliver a fall statement to the House of Representatives.
It is expected that Jeremy Hunt will protect the most vulnerable by increasing benefits and pensions in line with inflation, but he has warned that we will all face higher taxes to balance the budget.
Prime Minister Rishi Sunak stated at a news conference at the G20 Summit in Bali, “My absolute number one priority is ensuring that we address the economic situation at home.
“Inflation is at the forefront of people’s minds due to recent inflation-related news.” Opening up bills and receiving emails with increasing prices is the source of the most anxiety. Hence, it is proper that we seize the initiative.”
The Bank of England anticipated that inflation would have risen above 13% if the government had not intervened in the energy bill market last month, as average annual bills under the Ofgem-set price cap would have skyrocketed to approximately £3,450.
Financial markets predicted that policymakers would increase the Bank rate by an additional 0.5 percentage points when the rate-setting committee convenes again the following month.
The resulting rate would be 3.5%.
The higher-than-anticipated inflation rate, however, could result in a more aggressive rate hike, adding to the misery of borrowers following November’s 0.75 percentage point increase.
Despite revealing last month that it believed the country was already in recession, the Bank has signaled that inflation control is a top priority.
The economy contracted by 0.2% from July to September, according to data released last week.
The Bank has increased the likelihood of seven additional negative growth quarters.
Rachelle Earwaker, the senior economist at the living standards-focused Joseph Rowntree Foundation, commented on the pessimism: “The cost of living has millions fearing for the future, which is exacerbated by soaring food, transportation, and energy prices.
People are forced to sell their possessions or borrow money at exorbitant interest rates daily to afford these necessities.
David Bharier, the head of research for the British Chambers of Commerce, stated that separate ONS data regarding factory gate prices indicated that inflation had not yet reached its peak.
Thousands of businesses have informed us that this is untenable,” he said.
Many small and medium-sized enterprises (SMEs) are unable to absorb or pass on rising costs, according to our research.
“While the Bank of England seeks to control inflation through further interest rate hikes, this blunt instrument fails to address the fundamental drivers of inflation for the majority of businesses: soaring energy costs, global supply chain disruptions, and rising staff costs due to labor shortages.
Before tomorrow’s autumn statement, businesses will require a clear plan from the chancellor to stimulate business investment and growth, as well as targeted measures to alleviate the specific causes of inflation.
Otherwise, the United Kingdom’s economy will face a lethal combination of recession and runaway inflation.
