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Britain’s inflation rate rose to a 41-year high in October, fueling demands for the government to do more to ease the nation’s cost-of-living crisis when it unveiled new tax and spending plans on Thursday.
Britain’s inflation rate rose to a 41-year high in October, fueling calls for the government to do more to ease the nation’s cost-of-living crisis when it unveils new tax and spending plans on Thursday.
Consumer prices rose 11.1 percent in the 12 months to October, up from 10.1 percent in September, the Office for National Statistics said on Wednesday. The new figure beat economists’ expectations of 10.7 percent.
Higher food and energy prices pushed Britain’s inflation rate to the highest level since October 1981, the ONS said. That beats the record 10.7 percent inflation seen last month in the 19 European countries using the euro currency and the U.S. rate of 7.7 percent, which slowed in October.
The figures come a day before Treasury chief Jeremy Hunt is due to unveil a new budget, as rising inflation across the country erodes people’s spending power amid demands for higher wages, increased benefits and more spending on health and education.
Those demands are complicating Hunt’s efforts to close an estimated 50 billion pound ($59 billion) budget shortfall and restore the government’s fiscal credibility after former prime minister Liz Truce’s disastrous economic policies undermined investor confidence and sent financial markets into turmoil.
“We cannot have long-term, sustainable growth with high inflation,” Hunt said after the inflation figures were released. “Tomorrow I will lay out a plan to reduce debt, bring stability and reduce inflation while protecting the most vulnerable.”
Governments and central banks around the world are struggling to contain widespread inflation that began accelerating after the global economy recovered from the coronavirus pandemic, then surged after Russia’s invasion of Ukraine restricted supplies of natural gas, oil, grain and cooking oil.
While policymakers can do little to counter such external shocks, those price increases are becoming embedded as producers pass their costs on to consumers and workers demand higher wages, presenting a long-term threat to economic growth. .
The Bank of England predicted earlier this month that UK inflation would peak at around 11 percent in the fourth quarter and begin to decline early next year. The bank has approved eight consecutive interest rate hikes, pushing its key rate to 3 percent, as policymakers try to bring inflation back in line with their 2 percent target.
Hunt said the government had a duty to help the Bank of England control inflation and act responsibly with the country’s finances.
The comments were in stark contrast to the message of Truce, who said the government had a responsibility to boost growth, setting off a tug-of-war between the government and the central bank trying to cool the economy with its foot on the gas pedal. An economy with high borrowing costs.
European and US central banks are also raising rates aggressively, although the Federal Reserve is expected to temper them going forward after inflation slowed to 7.7 percent from 8.2 percent in September.
But UK inflation has not yet peaked.
Food prices rose 16.4 percent in the 12 months to October – the biggest jump since September 1977 – as supermarkets passed on rising costs to consumers, the Statistics Office said. The price of electricity and natural gas rose 24 percent even after the government capped energy prices to protect consumers from the effects of an energy crisis linked to the war in Ukraine.
Shona Lowe, financial planning expert at fund manager abrdn, said that understandably, inflation was a top concern for most households.
“Unfortunately, the UK has yet to follow in the footsteps of the US when it comes to easing inflation,” she said. “In fact, the Bank of England announced last week that it does not expect inflation to fall until the middle of next year, so consumers need to prepare for more pressure on their money.”
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