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London
CNN Business
–
Rising food and energy costs pushed UK inflation back to a 40-year high in September, but it may be nearing a peak as cash-strapped households return to spending amid the wider economic turmoil.
The annual inflation rate rose to 10.1% in September, up from 9.9% in the 12 months to August, the Office for National Statistics said on Wednesday. That returns it to the recent high of July.
Rising food prices were the biggest contributor to the acceleration in inflation, which rose 14.6% year-on-year, the ONS said.
A return to double-digit inflation will be worrisome for the Bank of England, which meets on November 3 to set interest rates. Governor Andrew Bailey has said a “robust response” may be needed to get price increases under control.
The central bank will assess rising price pressures against the government’s recent U-turn on unfunded tax cuts, which could help moderate inflation in the coming months.
“The dramatic scaling back of monetary support by the new Chancellor will be seen as reducing medium-term inflation, and that is what it is. [Bank of England] Policymakers will be more interested,” James Smith, emerging markets economist at Dutch bank ING, said in a note on Wednesday.
The bank now expects policymakers to raise interest rates next month by three-quarters of a percentage point instead of a full percentage point. ING economists believe inflation is likely to peak this month and begin to ease in 2023, as supply chain constraints improve and consumer demand flags.
Hunt said on Monday that energy prices remain a big unknown, after the government will cap prices universally until April. More targeted support could then trigger a new rise in energy bills for many households, boosting inflation once again in the spring.
Goldman Sachs warned that inflation could rise to 11.9% year-on-year from the current forecast of 7.1% in April and “remain high throughout 2023,” depending on what the government decides to do.
Rising prices come as wage growth continues to slow in Britain. Between June and August, average pay fell by 2.9% once inflation is taken into account, according to the ONS. That followed a 3% drop between April and June, the biggest drop in real wages since records began more than 20 years ago.
The UK government, meanwhile, is debating public spending cuts to control its growing debt load, further hurting households at a difficult time.
Reacting to the latest inflation figures, Hunt said the government would “prioritise help for the most vulnerable while delivering broader economic stability and driving long-term growth that helps everyone.”
According to the ONS, price increases in September were partially offset by declines in gasoline and airline ticket costs. “While still at historically high rates, costs facing businesses are starting to rise more slowly, as crude oil prices actually fell in September,” said Darren Morgan, director of economic statistics.
Inflation is a headache for policymakers across Europe, which is grappling with an energy crisis following Russia’s invasion of Ukraine. Rising energy costs and rising food prices pushed the eurozone’s annual inflation rate to 9.9% in September, up from 9.1% in August, Eurostat said on Wednesday.
– Julia Horowitz contributed to this report.
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