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London
CNN Business
–
UK inflation hit a fresh high in October thanks to rising energy costs, the latest piece of bad news for an economy sliding into recession.
The annual inflation rate rose to 11.1% in October, up from 10.1% in the 12 months to September, the Office for National Statistics said on Wednesday.
Despite the government’s energy price guarantee, the cost of living rose sharply due to rising gas and electricity prices, capping energy bills at £2,500 ($2,970) for typical households. Food inflation rose to 16.4%.
“Over the past year, gas prices have risen by around 130% while electricity prices have risen by around 66%,” ONS chief economist Grant Fitzner said in a statement.
According to the ONS, the prices of goods and services bought or consumed by UK households rose by 2% between September and October. That means that in the span of one month, prices rose as much as they did in the entire year to July 2021.
Although the economy has weakened, the acceleration in inflation presents a conundrum for policymakers as Britain’s economy is expected to suffer as the Bank of England raises borrowing costs to curb rising prices.
Data from the ONS last week showed that the UK economy contracted in the third quarter. The Bank of England’s latest forecast is for the recession to continue in 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 steep tax hikes and spending cuts to reduce debt in the medium term.
The Office for Budget Responsibility, the UK’s fiscal watchdog, predicts that a worsening economic outlook will increase government borrowing by close to £100 billion ($119 billion) in 2026-27. That’s £70 billion ($83.4 billion) more than forecast in March, the Financial Times reported this week, citing an aide to Hunt.
Investors will be looking for a clear commitment from the government to fix public finances, especially after former prime minister Liz Truss’ controversial tax-cutting plan crashed the pound, sent bond markets reeling and badly damaged the British government’s credibility.
Rising prices in Britain contrast with cool inflation in the United States. The US consumer price index rose 7.7% for the year ending in October, a slower pace than the 8% economists expected and the slowest annual inflation rate 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.
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