Inflation rose to 2.3 per cent in the year to October, up from 1.7 per cent in September – its lowest level since the early weeks of the first lockdown in 2021. This surge above the Bank of England’s 2 per cent target was higher than economists and markets had expected. Worryingly, core inflation (which excludes more volatile goods like food and energy) has also increased slightly to 3.3 per cent – up from 3.2 per cent in September. The largest contributors to the rise in inflation were from the effects electricity and gas prices are having on household costs.
The Office for National Statistics’ Chief Economist Grant Fiztner blamed the energy price cap, saying: ‘Inflation rose this month as the increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year.’
‘We know that families across Britain are still struggling with the cost of living’, said Chief Secretary to the Treasury Darren Jones. Things could get worse for ordinary Britons too as the Bank of England expects inflation to climb further to around 3 per cent by the end of the year.
One figure Bank of England rate setters follow keenly is the rise or fall in the costs of services. This can be more a reliable input when judging economic heat because it tends to be less volatile than the price of food or energy. But in the year to October service inflation rose unexpectedly from 4.9 per cent to 5 per cent.
Of course this rise barely compares with the inflation crisis Britain experienced over the past few years. But it’s still above a target that the Bank of England is not complacent about. So we shouldn’t be surprised if markets now expect the rate cuts to slow and possibly even come to a halt. A further cut in December is by no means baked in.
Today’s rise is unlikely to divert the government and Rachel Reeve’s from their desired course of economic action but it’s another worrying data point on top of stubbornly high long-term sickness affecting the labour market and seriously disappointing growth figures.
What’s more, businesses and organisations are now announcing redundancy plans. The Chancellor’s Budget brought about a ‘multimillion-pound increase’ in national insurance liabilities, the University of Edinburgh said as it announced job cuts. Charlie Mullins, the founder of Pimlico Plumbers told me on Spectator TV (which is out later today) that he expects the budget and economic headwinds to cause an unemployment crisis and that we will experience recession within six months. His warnings are perhaps a tad extreme but they align with the fears of many in the business community. We can only hope he’s wrong.
Listen to Michael Simmons explain the latest inflation data with Katy Balls and James Heale on the Coffee House Shots podcast:
Comments