Another unwanted record has been breached, with a fresh rise in inflation to its highest rate since October 1981. And despite curbs on energy bills put in place by the government last month, households across Britain are still facing huge stress in the worst emergency. living in generations.
Soaring gas and electricity costs were again the culprit as the consumer price index rose 11.1% in October, up from 10.1% in the previous month, even as the limit introduced by Liz Truss capped average bills at £2,500 for the average household.
However, the pressure on consumers was much broader due to the higher weekly store price. With inflation for food and non-alcoholic beverages reaching 16.4%, the highest rate since Elvis Presley was topping the charts in September 1977, a month after his death.
With the cost-of-living shock unleashed by the Covid pandemic and Russia’s war in Ukraine, poor families are bearing the brunt. According to the Office for National Statistics (ONS), the gap in the inflation rate between the poorest and richest households was the largest since 2009, reflecting the devastating nature of the crisis for Britain’s most vulnerable.
Low-income households spend a larger share on energy, food and other basic necessities, which means the 130% annual rise in gas prices and the 66% jump in electricity hits them hard.
Bad news though, it could have been worse without the government’s price guarantee, with the Office for National Statistics estimating that the 13.8% headline inflation rate could have been breached. There are also hopes that October could mark a turning point in the battle against inflation.
Economists expect that a combination of a weaker economy, cooling down in wholesale energy prices and waning impact of global supply shocks could ease price pressures. And with Britain on the verge of a prolonged recession and high unemployment, this makes sense.
However, families can expect the pain to continue for some time. Although the decline in energy prices in wholesale markets should fuel consumer prices, they are still much higher than they were before the crisis began. As a result, the Bank of England expects inflation to exceed 10% for several months before falling again.
This means that the bank is likely to launch another sharp increase in interest rates next month, adding pressure to borrowers. Despite the prospect of prolonged stagnation, Threadneedle Street argues it has a duty to bring inflation back to its target rate of 2%.
This backdrop of high inflation and a weak economic outlook will make some tough choices for Jeremy Hunt in Thursday’s fall statement. After the latest numbers, the chancellor was clear that lowering inflation was a key priority to stabilize the economy, along with his goal of balancing the books after the Truss mini-budget debacle.
“This insidious tax dents paychecks, family budgets and savings, while thwarting any opportunity for long-term economic growth,” he said. “We can’t have long-term, sustainable growth with high inflation.”
The bigger risk, however, is that drastic action to cut government borrowing through tax increases and spending cuts could choke the economy, while further tearing apart the shattered welfare state at a time when households need it most.
Hunt will be called upon to take action to provide renewed support with a focus on supporting the most vulnerable, especially now that the government’s emergency energy price guarantee expires in April, rather than the two years Truss promised.
Without an alternative to the system, the Resolution Foundation estimates annual bills for households could be as high as £4,000. This is simply an unaffordable amount for millions of people.