Rising household energy bills and food prices pushed British inflation to its highest level in 41 years, data showed, a day before Finance Minister Jeremy Hunt announced “tough but necessary” tax hikes and spending cuts to control price growth. .
The Office for National Statistics reported Wednesday that consumer prices rose 11.1% in the 12 months through October, the most since October 1981 and a significant jump from 10.1% in September.
Economists polled by Reuters – many of whom believe inflation has now peaked – had expected inflation to rise to 10.7%.
The Office for National Statistics said inflation would have risen to around 13.8 percent in October had the government not intervened to reduce household energy bills to an average of 2,500 Egyptian pounds ($2,960) a year.
Responding to the data, Hunt – who is set to set a new budget on Thursday – said “tough but necessary” decisions are needed to tackle rising prices.
“It is our duty to assist the Bank of England in its mission to return inflation to target by acting responsibly with the nation’s finances,” he said in a statement.
Analysts said the jump kept pressure on the Bank of England to continue raising interest rates, but the scope of austerity set to be announced on Thursday could mean borrowing costs need to be raised less.
“The UK is in a somewhat unique position where the government is planning a massive program of measures to help balance its books,” said Ellie Henderson, economist at Investec.
“The scope of the proposed fiscal tightening would undoubtedly affect economic growth and as such would bring down inflation with it, opening the door for the Bank of England to tighten policy at a less drastic pace.”
But Mike Bell, global market analyst at JP Morgan Asset Management, said Wednesday’s data suggested inflation pressures from a tight labor market had been underestimated, and the Bank of England was likely to raise interest rates to 4.5% from 3.0% now.
“These figures are uncomfortable alongside the message sent from the Bank of England…when it argued that only a slight hike in interest rates would be necessary to bring inflation back to its 2% target,” Bell said. “We are not convinced.”
The Bank of England had forecast inflation of 10.9% in October in forecasts published this month.
Hurting low-income earners over the 12 months to October, the ONS said prices of food and non-alcoholic drinks rose at the fastest rate since 1977.
The figures showed that the cost of milk has increased by about 50% in the past year. Pasta prices increased by 34%, butter by 30% and cheese by 27%.
In contrast to the jump in the headline number, core inflation — which excludes food, energy and other volatile components — was unchanged at 6.5%.
The Office for National Statistics said lower-income households, which account for a larger share of spending on energy and food, suffered an inflation rate of 11.9% while those with higher incomes faced a rate of 10.5%.
The Cities Centre, a think tank, said some of Britain’s most disadvantaged towns and cities had some of the highest actual rates of inflation.
Topping the list is Burnley, in northern England – where some retirees skip meals to make ends meet. Consumer prices there are up 13% compared to last year.
Producer price data showed there was still inflationary pressure in the pipeline but hinted at a possible slowdown.
Manufacturers’ costs for raw materials and energy rose at the slowest pace since March but at 19.2% the increase was still huge by historical standards.
Prices charged by factories rose 14.8% in the 12 months through October, the slowest increase since April.
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