UK inflation reaches a 40-year high as a result of rising food prices
In the United Kingdom, inflation returned to a 40-year high in September due to rising food and energy prices. However, it may be peaking as cash-strapped households cut back on spending amid broader economic turmoil, Sanchit Gupta reports.
According to the Office for National Statistics, inflation rose to 10.1% in September from 9.9% in the previous 12 months ending in August. This brings it back to its most recent high set in July. The ONS attributed 14.6% of the annual increase in inflation to the sharp rise in food prices.
The Bank of England, which met on November 3rd to decide on interest rates, will be concerned by the return of double-digit inflation. Governor Andrew Bailey believes that a “stronger response” may be required to keep price increases in check.
The government recently reversed course on unfunded tax cuts, which may help ease inflation in the coming months. The central bank will assess rising price pressures in light of this.
According to James Smith, developed markets economist at Dutch bank ING, “the new Chancellor’s dramatic scaling back of financial support will be seen as lowering medium-term inflation,” which is what the Bank of England’s policymakers will be more concerned with.
The central bank has reduced its forecast for a full percentage point increase in interest rates next month to three-quarters of a percentage point. As supply chain bottlenecks are removed and consumer demand falls, ING economists forecast that inflation will peak this month and begin to fall in 2023.
Hunt announced on Monday that the government would universally cap energy prices until April, putting the future of energy prices in doubt. More targeted aid could cause energy prices to rise for many households, fueling inflation in the spring.
According to Goldman Sachs, inflation could rise from 7.1% in April to 11.9% year on year, depending on what the government does.
While prices rise, wage growth in the United Kingdom continues to fall. The average wage fell by 2.9% between June and August when adjusted for inflation. This came from the largest drop in real wages in over 20 years, a 3% drop between April and June.
Meanwhile, the UK government is debating public spending cuts to rein in the country’s ballooning debt, which would put an additional financial strain on families when they can least afford it.
In the face of rising prices, Hunt pledged that the government “will prioritise assistance for the most vulnerable while delivering wider economic stability and driving long-term growth that will benefit everyone.”
According to the ONS, the price of gasoline and airline tickets fell in September, offsetting some of the month’s upward pressure on consumer prices. According to Darren Morgan, director of economic statistics, “while still at a historically high rate, business costs are beginning to rise more slowly, with crude oil prices actually falling in September.”
European policymakers are also dealing with an energy crisis due to Russia’s invasion of Ukraine. According to Eurostat data released on Wednesday, Eurozone annual inflation rose to 9.9% in September from 9.1% in August. This rise was primarily due to higher energy and food prices.
About Sanchit Gupta
Sanchit Gupta is a freelance journalist based in India. He founded and is the Editor-in-Chief of IndiaReflects.com, the country’s first real-world news outlet. Visit IndiaReflects.com and follow their social media platforms for more information on his work to end disinformation.