Soaring 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, from 10.1% in the 12 months to September, the Office for National Statistics said on Wednesday.
The sharp rise in the cost of living has been caused by rising gas and electricity prices, despite a government guarantee on energy prices, which caps energy bills at £2,500 (2,970 $) for the typical household. Food price inflation reached 16.4%.
“Over the past year, gas prices have soared by almost 130% while electricity has risen by around 66%,” ONS chief economist Grant Fitzner said in a statement. a statement.
The prices of goods and services bought or consumed by British households increased by 2% between September and October, according to the ONS. This means that in the space of a month, prices have risen as much as they have for the whole year to July 2021.
Accelerating inflation even as the economy weakens presents a conundrum for policymakers, as the UK economy is set to suffer as the Bank of England continues to raise borrowing costs to limit rising inflation. price.
Data from the ONS last week showed the UK economy contracted in the third quarter. The latest projection from the Bank of England is that the recession will continue through the first half of 2024.
In this gloomy context, British Finance Minister Jeremy Hunt will present the government’s budget on Thursday. Hunt is likely to announce big tax hikes and spending cuts in an effort to reduce debt over the medium term.
The Office for Budget Responsibility, Britain’s budget watchdog, is expected to forecast that a deteriorating economic outlook will increase government borrowing to nearly £100 billion ($119 billion) in 2026-27. That’s £70 billion ($83.4 billion) more than expected in March, the Financial Times reported this week, citing an ally of Hunt.
Investors will be looking for a clear commitment from the government to fix public finances, especially after former Prime Minister Liz Truss’ controversial tax cut plan slumped the pound, rattled bond markets and severely damaged the credibility of the British government.
The rise in prices in Great Britain contrasts with the slowdown in inflation in the United States. The U.S. consumer price index rose 7.7% for the year ending October, a slower pace of growth than economists predicted 8% and the lowest annual inflation since January.
Investors are hoping that easing price pressures could moderate the pace and magnitude of interest rate hikes by the Federal Reserve, a view that has boosted U.S. stocks in recent days.