UK Inflation Accelerates to 41-year High of 11.1%

When the government publishes new tax and spending plans on Thursday, there will be more pressure on it to do more to help the country's cost-of-living crisis as the country's inflation rate hit a 41-year high in October.

In the 12 months ending in October, consumer prices increased 11.1%, compared to a 10.1% increase in September, the Office for National Statistics reported on Wednesday. The October number was higher than the 10.7% forecast by economists.

According to the ONS, higher food and energy prices caused Britain's inflation rate to reach its highest level since October 1981.

The data are released a day before Treasury Secretary Jeremy Hunt is set to present a new budget. As roaring inflation erodes people's purchasing power nationwide, there are mounting calls for higher wages, bigger benefits, and increased expenditure on health and education.

These demands are making it more difficult for Hunt to balance the budget and rebuild the government's financial credibility in the wake of Liz Truss's disastrous economic policies, which destroyed investor confidence and caused havoc on the financial markets and a projected 50 billion pound ($59 billion) budget shortfall.

After the inflation data were revealed, Hunt stated, "We cannot have long-term, sustainable growth with high inflation." "Tomorrow I will lay out a strategy to bring about debt reduction, stability, and inflation control while safeguarding the most vulnerable."

The coronavirus pandemic recovery has accelerated worldwide inflation, which is difficult for governments and central banks to control. Global inflation spiked after Russia's invasion of Ukraine cut off supply of natural gas, oil, grain, and cooking oil.

A longer-term threat to economic growth is posed by price rises that are becoming embedded as companies pass along their costs to consumers and workers demand higher salaries, despite the fact that policymakers have limited control over such external shocks.

Earlier this month, the Bank of England predicted that the UK's inflation would reach a peak of about 11% in the fourth quarter and then start to decline early the next year.

In an effort to get inflation back to where it should be at 2%, the bank has approved eight straight rate rises, bringing its benchmark rate to 3%.

According to Hunt, the government has a responsibility to manage the country's finances properly and assist the Bank of England in controlling inflation. The statement contrasted sharply with Truss's assertion that it was the role of government to promote growth, setting up a tug-of-war between a government pressing the accelerator and a central bank trying to cool the economy with higher interest rates.

In the United States, inflation decreased from 8.2% in September to 7.7% in October.

But UK inflation hasn't reached its pinnacle yet.

The greatest increase in food prices since September 1977 occurred in the 12 months leading up to October, climbing 16.4%, according to the ONS, as shops passed on growing costs to customers. Even after the government set a cap on energy prices to protect customers from the effects of the energy crisis, the cost of electricity and natural gas increased by 24%.

It makes sense, according to Shona Lowe, a financial planning specialist at the investment management abrdn, that most people' primary fear is inflation.

She noted that when it comes to inflationary pressures, "unfortunately, the U.K. is not yet following in the footsteps of the US."

"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."