Inflation has risen above the Bank of England’s 2 percent target, causing the cost of living to increase rapidly. After hitting a 41-year high of 11.1 percent in 2022, consumer price inflation (CPI) dropped to 1.7 percent in September. However, the latest data from the Office for National Statistics shows that inflation has once again risen to 2.3 percent in October.
The Bank of England aims to control inflation by adjusting the cost of borrowing through its base interest rate. The recent increase in inflation was higher than the 0.5 percent hike that economists at the Bank of England had predicted. This rise was primarily driven by energy bill increases following Ofgem’s price cap raise of around 10 percent to £1,717 for an average household.
Grant Fitzner, the chief economist at ONS, stated that the rise in inflation was mainly due to higher costs for gas and electricity as a result of the energy price cap increase. This was partially offset by decreases in recreation and culture expenses, such as live music and theatre ticket prices. The cost of raw materials for businesses continued to decline, largely due to lower crude oil prices.
The Bank of England’s latest projections suggest that inflation is expected to rise slightly next year to reach 2.75 percent before falling back below the 2 percent target. The central bank has already cut interest rates to address the rising inflation, and further cuts are anticipated in the future.
Economists at Pantheon Macroeconomics predicted that a rebound in airfares would contribute to the higher inflation rate in October. However, this increase may be offset by lower motor fuel prices and easing food inflation. Chancellor of the Exchequer, Rachel Reeves, has pledged to boost economic growth in order to alleviate the cost of living pressures faced by families across Britain.
The unexpected rise in inflation may also be attributed to Labour’s October Budget, which included increased public sector spending, higher minimum wage, and new costs for businesses. Economic adviser Joe Nellis points out that factors such as a tight labor market, rising employment costs, and potential tariffs imposed by the US may further impact the economic outlook.
Despite the challenges, the Bank of England is expected to monitor inflation closely and aims to keep it below 3 percent in the coming months. The government is focused on economic growth and investment to improve the financial well-being of all citizens. By addressing these economic factors, policymakers hope to stabilize inflation rates and support the overall economy.
