UK inflation jumps to 41-year high of 11.1%


London
CNN Business

Rising energy costs pushed UK inflation to a new high in October, the latest 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.

The sharp rise in living costs was caused by rising gas and electricity prices, despite a government energy price guarantee, which caps energy bills at £2,500 ($2,970) per in the typical home. Food price inflation rose to 16.4%.

“Over the past year, gas prices have risen by almost 130% while electricity prices have risen by around 66%,” ONS chief economist Grant Fitzner said in a statement.

The prices of goods and services bought or consumed by UK households rose by 2% between September and October, according to the ONS. This means that in the space of one month, prices rose as much as they did in the entire year to July 2021.

Accelerating inflation, even as the economy weakens, presents a conundrum for policymakers because Britain’s economy is expected to suffer as the Bank of England continues to raise borrowing costs to limit the ‘increase in prices.

Last week’s data from the ONS showed that the UK economy contracted in the third quarter. The Bank of England’s latest projection is for the recession to continue into the first half of 2024.

Against this gloomy backdrop, UK Chancellor of the Exchequer Jeremy Hunt will present the government’s budget on Thursday. Hunt is likely to announce steep tax hikes and spending cuts to try to reduce debt in the medium term.

The Office for Budget Responsibility, the U.K.’s fiscal watchdog, is expected to forecast that a worsening economic outlook will increase government borrowing by nearly 100 billion pounds ($119 billion) by 2026- 27. That’s 70 billion pounds ($83.4 billion) more than he predicted in March, the Financial Times reported this week, citing a Hunt ally.

Investors will be looking for a clear commitment from the government to fix the public finances, especially after former prime minister Liz Truss’ controversial tax cut plan crashed the pound, hit bond markets and badly damaged the credibility of the british government

Rising prices in Britain contrast with cooling inflation in the United States. The US consumer price index rose 7.7% in the year to October, a slower pace of increase than the 8% economists had expected and the inflation reading lowest annual since January.

Investors hope 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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