Britain’s inflation rose to a 41-year high in October, fueling calls for the government to do more to ease the country’s cost of living crisis when it releases new tax and spending plans on Thursday.
Consumer prices rose 11.1% in the 12 months to October, compared with 10.1% in September, the Office for National Statistics said on Wednesday. The new figure beat economists’ expectations of 10.7%.
Higher food and energy prices pushed UK inflation to the highest since October 1981, the ONS said. It surpasses record inflation of 10.7% last month in the 19 European countries that use the euro currency and the US rate of 7.7%, which eased in October.
The figures come a day before Chancellor of the Exchequer Jeremy Hunt is scheduled to present a new budget amid growing calls for higher pay, increased benefits and more spending on health and education as rampant inflation erodes the spending power of people across the country.
Those demands complicate Hunt’s efforts to close an estimated 50 billion pound ($59 billion) budget deficit and restore the government’s financial credibility after former prime minister Liz Truss’s disastrous economic policies undermined investor confidence and sparked turmoil in financial markets.
“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 bring debt down, deliver stability and drive down inflation while protecting the most vulnerable.”
Governments and central banks around the world are struggling to contain rampant inflation that began to accelerate as the global economy recovered from the coronavirus pandemic, then soared after Russia’s invasion of Ukraine limited supplies of natural gas, oil, grain and cooking oil. While there is little that policymakers can do to combat such external shocks, these price increases are becoming embedded as producers pass their costs onto consumers and workers demand higher wages, posing a long-term threat to economic growth.
The Bank of England predicted earlier this month that inflation in the UK would peak at around 11% in the fourth quarter and start falling early next year. The bank has approved eight consecutive interest rate hikes, pushing the key rate to 3%, as policymakers try to bring inflation back in line with their 2% target.
Hunt said the government has a duty to help the Bank of England control inflation and act responsibly with the country’s finances. The comment was in stark contrast to the message from Truss, who said it was the government’s responsibility to stimulate growth, setting off a tug-of-war between a government with its foot on the economic accelerator and a central bank trying to cool the economy with higher borrowing costs.
The European and US central banks have also raised interest rates aggressively, although the Federal Reserve is expected to moderate them going forward after inflation slowed to 7.7% last month from 8.2% in September.
But inflation in the UK has not yet peaked.
Food prices rose 16.4% in the 12 months to October – the biggest rise since September 1977 – as supermarkets passed on rising costs to consumers, the statistics office said. The cost of electricity and natural gas rose by 24%, even after the government put a cap on energy prices to protect consumers from the effects of the energy crisis linked to the war in Ukraine.
Shona Lowe, financial planning expert at fund manager abrdn, said inflation was understandably a major concern for most households.
“Unfortunately, the UK is not yet following in the US’s footsteps in 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 further pressure on their finances.”