UK inflation jumps to 41-year high of 11.1% - CNN

London CNN Business  — 

Soaring energy costs drove UK inflation to a fresh high in October, the latest piece of bad news for an economy sliding into recession.

The annual rate of inflation 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 increase 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) for the typical household. Food price inflation rose to 16.4%.

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

Andrew Bailey, governor of the Bank of England (BOE), during the Monetary Policy Report news conference at the bank's headquarters in the City of London, UK, on Thursday, Nov. 3, 2022. The Bank of England raised interest rates by the most in 33 years but strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession. Photographer: Hollie Adams/Bloomberg via Getty Images

Hollie Adams/Bloomberg/Getty Images

Bank of England sets biggest rate hike in 33 years and warns of a long recession

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

The acceleration in inflation even as the economy weakens presents a conundrum for policymakers because Britain’s economy is expected to suffer as the Bank of England keeps raises borrowing costs to cap rising prices.

Data last week from the ONS showed that the UK economy shrank in the third quarter. The Bank of England’s latest projection is for the recession to continue through the first half of 2024.

Against this gloomy backdrop, UK finance minister Jeremy Hunt will present the government’s budget on Thursday. Hunt is likely to announce hefty tax rises and spending cuts in a bid to reduce debt in the medium term.

The Office for Budget Responsibility, the UK fiscal watchdog, is expected to forecast that a worse economic outlook will raise government borrowing close to £100 billion ($119 billion) in 2026-27. That’s £70 billion ($83.4 billion) more than it predicted in March, the Financial Times reported this week, citing an ally of Hunt.

LONDON, ENGLAND - OCTOBER 21: Shoppers walk down Oxford Street on October 21, 2022 in London, England. The Office For National Statistics announced that September's retail sales volumes have fallen by 1.4% much more than expected as households cut back spending in the face of rising borrowing and energy costs. The mourning period following Queen Elizabeth II's death was also considered a factor. Meanwhile, public sector borrowing hit £20 billion in September, compared with the £17.1 billion forecast. (Photo by Dan Kitwood/Getty Images)

Dan Kitwood/Getty Images

The UK economy is sliding into recession and Europe is set to follow

Investors will be looking for a clear commitment from the government to fixing public finances, particularly after former prime minister Liz Truss’ controversial tax-cutting plan crashed the pound, roiled bond markets and badly damaged the British government’s credibility.

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

Investors are hoping 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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2022-11-16 10:50:00Z
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