19 October: Inflation Soars To 11.1% As Energy Bills Bite
UK inflation, as measured by the Consumer Prices Index (CPI), has surged to 11.1% in the year to October 2023, up from 10.1% in September, according to the latest figures from the Office for National Statistics (ONS). This marks the highest level since 1981.
The sharp increase is primarily attributed to soaring energy bills, despite the government’s Energy Price Guarantee which limited annual energy costs to £2,500 for the average household. The ONS noted that without the price cap, inflation would have been even higher.
Households are also grappling with rising food prices, which have increased at the fastest rate in over 40 years. Other significant contributors to the inflation spike include transport costs, particularly air and road transport, and housing costs.
Grant Fitzner, ONS Chief Economist, said: “The cost of energy and food continues to have a significant impact on inflation. Although the government’s energy price guarantee has provided some relief, it hasn’t been enough to prevent inflation from reaching its highest level in over four decades.”
The Bank of England, which has a target to keep inflation at 2%, is now under increased pressure to raise interest rates further. The Bank’s Monetary Policy Committee is set to meet next month, and another rate hike appears likely as it continues its battle against rising prices. The current Bank Rate stands at 3.5% following a series of increases this year.
Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown, commented: “With inflation surging past 11%, the Bank of England is almost certain to increase interest rates again in December. This will have a direct impact on mortgage rates, adding to the financial pressure on households.”
In response to the inflation figures, Chancellor of the Exchequer, Jeremy Hunt, said: “We are acutely aware of the pressures facing households across the country. The government is committed to bringing inflation under control and supporting families during these challenging times.”
The next inflation figure, which will provide further insight into the economic pressures faced by households, is due to be released in mid-November.
The Bank of England has maintained its interest rate at 5.25%, marking the seventh consecutive time since August last year that it has kept the rate unchanged. The decision was reached by a 7-2 vote, with the dissenting members favoring a quarter-point reduction. Echoing the recent stance of the US Federal Reserve, the Bank of England emphasized the need to ensure inflation remains low before considering a rate cut.
Governor Sir Andrew Bailey cited the necessity of monitoring inflationary pressures closely, particularly labor market conditions and wage growth. The next rate announcement is set for August 1, with speculation about a possible reduction to 5%, although the Bank may wait for any economic fallout from the upcoming General Election on July 4.
The backdrop to this decision includes a successful inflation management strategy that saw UK inflation drop from 11.1% in October 2022 to the 2% target achieved recently. However, the decision contrasts with recent rate cuts by the European Central Bank and the Swiss National Bank, indicating varying approaches among central banks.
Experts are divided on the timing of the Bank of England’s first rate cut, with some predicting potential easing as early as August if inflation remains controlled, while others suggest waiting until November. The Bank’s cautious stance reflects the ongoing economic uncertainties and the need to balance inflation control with economic resilience.
