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Grocery chain CEO on food prices: 'My crystal ball is broken'
The annual rate of inflation rose to 11.1% in October, up from 10.1% in the 12 months to September, the Office for National Statistics said on Wednesday.
The sharp increase in living costs was caused by rising gas and electricity prices, despite a government energy price guarantee, which caps energy bills at £2,500 ($2,970) for the typical household. Food price inflation rose to 16.4%.
“Over the past year, gas prices have climbed nearly 130% while electricity has risen by around 66%,” ONS chief economist Grant Fitzner said in a statement.
The prices of goods and services bought or consumed by UK households increased by 2% between September and October, according to the ONS. That means that in the space of one month, prices rose by as much as they did in the entire year to July 2021.
The acceleration in inflation even as the economy weakens presents a conundrum for policymakers because Britain’s economy is expected to suffer as the Bank of England keeps raises borrowing costs to cap rising prices.
Data last week from the ONS showed that the UK economy shrank in the third quarter. The Bank of England’s latest projection is for the recession to continue through the first half of 2024.
Against this gloomy backdrop, UK finance minister Jeremy Hunt will present the government’s budget on Thursday. Hunt is likely to announce hefty tax rises and spending cuts in a bid to reduce debt in the medium term.
The Office for Budget Responsibility, the UK fiscal watchdog, is expected to forecast that a worse economic outlook will raise government borrowing close to £100 billion ($119 billion) in 2026-27. That’s £70 billion ($83.4 billion) more than it predicted in March, the Financial Times reported this week, citing an ally of Hunt.
Investors will be looking for a clear commitment from the government to fixing public finances, particularly after former prime minister Liz Truss’ controversial tax-cutting plan crashed the pound, roiled bond markets and badly damaged the British government’s credibility.
Rising prices in Britain contrast with cooling inflation in the United States. The US Consumer Price Index rose 7.7% for the year ending in October, a slower pace of increase than the 8% economists had expected and the lowest annual inflation reading since January.
Investors are hoping that easing price pressures could moderate the pace and scale of interest rate hikes by the Federal Reserve, a view that has boosted US stocks in recent days.