UK inflation hits 11.1%, highest level in 41 years

Rising inflation in the United Kingdom (UK) is becoming increasingly worrying, with the latest data showing that inflation in the month of October was 11.1%. This data released by the Office for National Statistics (ONS) is the highest for 41 years, indicating that the government led by Rishi Sunak must face new headwinds in the short term.

The growth in inflation is mainly due to the high costs of electricity, gas and other fuel sources.

Modeled estimates of consumer price inflation suggest that the CPI rate would have last been higher in October 1981, when the estimated annual inflation rate was 11.2%“, said the ONS.

While the annual growth of the consumer price index was high, it was moderate compared to the previous month, increasing by only 2%. The cost of housing and household services jumped a record 11.7% in October. This figure rose from 9.3% in September of this year.

In October 2022, households pay, on average, 88.9% more for electricity, gas and other fuels than a year ago“, said the ONS. “Domestic gas prices have seen the biggest increase, with prices in October 2022 being more than twice as high as the previous year.

While energy prices remain high, contributions from food and beverages especially soft drinks increased by 16.4% through October 2022. This food inflation is the highest since 1977.

UK inflation and government response

The UK is currently in one of the most troubling recessions on record as the Bank of England has continued to exercise monetary policies to control inflation. Recently, the Bank of England raised interest rates by 75 bases at the start of the month, bringing the total bank rate to 3%. Given current events, the bank should continue to raise interest rates until the overall bank rate reaches 4.5%.

Mike Bell, global market strategist at JPMorgan Asset Management, said the inflation numbers run counter to actions by the Bank of England, which posits that higher interest rates will curb inflation .

We are not so convinced. What has been consistently underestimated are the inflationary pressures stemming from the tightness of the labor market“said Mr. Bell. “Although vacancies and employment fell slightly in yesterday’s labor market report, wage growth continued to rise. With headline inflation expected to remain high for a few more months, workers could still demand a pay rise to protect their disposable income.

By tomorrow, UK Finance Minister Jeremy Hunt is expected to present a new budget statement. In particular, he is expected to announce yet another stealth tax hike in an attempt to ease the more than £50billion deficit that is currently visible in the government’s purse.

Overall, UK inflation growth and monetary policies should be at the same level in order to break even, but when that will happen remains unpredictable.

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