Inflation in the U.K. reached 4.2% in October, its highest level in nearly 10 years, due to the rise in fuel and energy prices. According to the Office for National Statistics (ONS), the consumer price index (CPI) had increased by 3.1% the previous month.
Inflation In The U.K. Soars To Record
As reported by Sky News, the rising CPI in Britain puts pressure on the Bank of England as the energy price cap grew by 12% on household bills in October, followed by spikes in education, transport, dining out, and fashion.
According to ONS chief economist Grant Fitzner, “This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels.”
“Costs of goods produced by factories and the price of raw materials have also risen substantially, and are now at their highest rates for at least 10 years,” he added.
Earlier in November –in a shock move– the Bank of England had held interest rates stable, as it now predicts inflation is bound to hit 5% by the spring of 2022 and then tail off to reach the 2% target in late 2023 –once fuel prices stabilize and consumer demand tames.
What Lies Ahead
Samuel Tombs, the chief U.K. economist at Pantheon Macroeconomics, was quoted as saying on CNBC that a 5% peak is a strong possibility, since “The jump in the headline rate in October, to its highest rate since December 2011, was driven primarily by the 12.2% increase in Ofgem’s default tariff price cap.”
“In addition, motor fuel prices jumped by 3.0% month-to-month in October, but fell slightly a year ago, with the result that its contribution to the headline rate increased by 0.1pp. Food CPI inflation also rose to 1.2%, from 0.8%, closing the gap with producer prices.”
Sarah Coles, personal finance analyst at Hargreaves Lansdown, asserts that statistics may prompt the Bank of England to intervene, as “Savers may be spoiling for a fight that they hope will boost their rates, but waiting for the fur to fly before switching your savings is a risky move.”
Yael Selfin, chief economist at KPMG UK, concludes: “While not unexpected, confirmation that inflation is moving further away from its 2% target may seal the Bank of England's resolve to raise rates in December, following the strong labor data released this week.”