A shopping basket in a supermarket in London
by Andy Bruce and William Schomberg
LONDON (Reuters) – A continued boom in energy and food prices pushed inflation in Britain to a 41-year high in October, official statistics showed on Wednesday, a day before the government announced further tax rises and cuts in public spending.
The consumer price index rose by 11.1% in a year, a figure not seen since October 1981, after 10.1% in September, the ONS, the Office for National Statistics, said. Economists polled by Reuters expect an average increase of 10.7%.
Inflation would have reached around 13.8% if the government had not capped UK household energy bills at £2,500 (€2,850) a year on average, the ONS specifies.
Reacting to the figures, Chancellor of the Exchequer Jeremy Hunt, who will unveil the budget guidelines for the Rishi Sunak-led government on Thursday, said “tough but necessary” decisions must be made to stem rising prices.
“It is our duty to help the Bank of England in its mission to bring inflation back to its target by acting responsibly towards the country’s finances,” he said in a statement.
For analysts, the new acceleration of inflation in October increases the pressure on the Bank of England (BoE) in favor of a continuation of the interest rate increase.
“These figures contradict the message sent by the Bank of England (…) when it said that only a modest rise in interest rates will be needed to bring inflation back towards its 2% target”, assesses Mike Bell, JPMorgan Asset Management strategist. “We are not convinced.”
INFLATION EVEN HIGHER FOR POOR HOUSEHOLDS
Believing that UK labor market tensions are understated and that workers will continue to demand pay rises to offset inflation, Mike Bell expects the BoE’s key rate to rise to 4.5%, compared to 3.0% today .
ING economist James Smith, on the other hand, estimates that certain elements suggest that inflation has reached a peak and that the policy rate will peak around 4%, i.e. slightly below the level that the markets are currently integrating.
The breakdown of the October figures shows that the prices of food and non-alcoholic drinks have risen at a pace not seen since 1977.
Core inflation, which excludes food, energy and other volatile items, remained steady in October at 6.5% year-on-year.
But the ONS points out that households on the lowest incomes, for whom food and energy make up a larger share of spending, face inflation of 11.9% compared to 10.5% for the highest incomes.
The producer price figures also suggest that inflationary pressures remain high but may be easing.
The cost of raw materials and energy paid by manufacturers thus increased by 19.2% for a year, which is, however, the lowest recorded since March. And prices from those companies rose 14.8% on the year, their slowest increase since April.
(Reporting by Andy Bruce, French Editing by Marc Angrand, Editing by Kate Entringer)