Inflation in the UK climbed sharply to 4.2 per cent in October, its highest rate for nearly a decade, driven by rising fuel and energy prices, pressuring the Bank of England to raise its key interest rate at its December meeting .
The cost of living, as measured by the Office for National Statistics’ Consumer Price Index, rose last month at its fastest rate since November 2011. In October alone, it increased by 1.1 percent in large part due to higher energy costs for homes.
On Monday, Bank of England Governor Andrew Bailey told lawmakers he was “very uneasy” about rising inflation.
The latest data comes after employment figures in early October defied expectations of some economists by proving flexible until the end of the furlough scheme. The unemployment rate fell to 4.3 percent from July to September, and employers added 160,000 workers to their payrolls last month.
However, the reduction in the cost of living indicated a moderation on Wednesday, with the Office for National Statistics Consumer Price Index rising 4.2 percent in October, up from 3.1 percent in September. It compares wage growth with an underlying rate that the ONS have guessed To be between 3.2 and 4.4. percentage, while the official data has probably been distorted by the impact of COVID-19.
The Bank of England and the government’s official spending watchdog, the Office for Budget Responsibility, have suggested that price hikes could reach 5 percent early next year, outpacing the rate of wage increases and putting pressure on the household budget. can.
Grant Fitzner, chief economist of the ONS, said: “Inflation hit the highest rate in almost a decade in October.
“This was driven by a rise in household energy bills due to a price cap increase, an increase in the cost of used cars and fuel, as well as higher prices at restaurants and hotels.
“The cost of goods produced by factories and the price of raw materials have also increased significantly and are now at the highest rates for at least 10 years.”
The 4.3 percent rate for the 12 months to October is more than double the government’s order from the Bank of England to control inflation at close to 2 percent. The latest data will therefore put considerable pressure on policymakers to raise the key interest rate from a historically low level of 0.1 per cent.
However, the figures also come amid mounting evidence that Britain’s pandemic has stalled economic recovery, adding to the risk that interest rate hikes could further slow economic growth.
Jack Leslie, senior economist at think tank The Resolution Foundation, said: “The global economic recovery has led to a sharp increase in inflation that families are feeling at petrol pumps, in their energy bills and in their pay packets. With inflation projected to reach 5 percent by next spring, we can be prepared for a continued period of shrinking pay packets.
“Although painful for households, the fact is that the global nature of these inflationary pressures means that traditional means such as raising interest rates have little effect.
“Instead, we need to focus on securing an as yet incomplete Covid recovery so that strong growth creates more scope for higher wage growth.”
In addition to higher energy costs, increases in the ONS’ measure of price growth were also fueled by increases in prices in CPI, education, transportation, clothing and footwear, housing and home services, and restaurants and hotels, suggesting that service providers will be passing on to consumers at the cost of higher employee pay packets and supply chain disruption.
But Citi economists and the Bank of England expect inflation to reach 5 percent next spring, with some believing it will ease by the end of 2022, meaning the central bank’s head Any increase in interest rate will be limited.
Paul Dales, UK’s chief economist at Capital Economics, said a 5 per cent “peak” in April 2022 would be in line with the bank’s forecast of a hike in interest rates.
“Going forward, we suspect that CPI inflation will fall slightly further in the second half of next year, perhaps closer to the 2.0% target by December 2022,” he said. “So although interest rates may go up from 0.10 per cent in December to 0.25 per cent and maybe 0.50 per cent in February, we do not think they will reach the level of 1.00-1.25 per cent currently in the market.” end of next year. ,
Credit: www.independent.co.uk /