UK inflation is highest in nearly a decade
London UK consumer prices rose at the fastest rate in nearly a decade in October amid rising energy costs, official figures showed on Wednesday, a development that bolstered market expectations that the Bank of England will raise interest rates next month.
The Office for National Statistics said inflation accelerated to 4.2% in the 12 months through October, from 3.1% in the previous month. The larger-than-expected increase has pushed inflation to its highest level since November 2011 and means most people will experience a decline in living standards in the lead-up to Christmas as household incomes increase.
With inflation running at more than double the Bank of England’s 2% target rate, the central bank is under pressure to raise interest rates to try to curb price hikes by calming the economy. It was widely expected to become the first central bank among the major industrial countries to raise interest rates earlier this month, but was held back by some concern about the unemployment outlook.
With numbers showing on Tuesday that the UK labor market remains resilient, many analysts said the latest inflation numbers give rate setters at the Bank’s Monetary Policy Committee, or MPC, more ammunition to modestly raise the benchmark rate from the record low of 0.1 % to 0.2%.
“With CPI inflation moving away from the BoE’s 2% target, there is now more pressure on the MPC to act to curb price growth at its next meeting in December,” said economist Eli Henderson at Investec.
Not everyone thinks a rate hike is a good idea, especially at a time when Britain’s economic recovery from the coronavirus pandemic appears to be losing some momentum. Skeptics believe that the rate hike will not have a significant impact because a large part of the increase in inflation is caused by temporary factors associated with the shock of the epidemic, such as lack of supplies, and as a result, inflation will drift downward towards the banks. target next year.
In its release on Wednesday, the statistics agency noted that inflation data was affected by the effects of coronavirus-related shutdowns that led to “significant declines” in some prices last year. These unusually low prices are now the starting point for calculating 12-month price increases, causing short-term “distortions” in the numbers.
These are the factors that influence inflation levels around the world. Last week, the United States recorded an annual inflation rate of 6.2%, its highest level in nearly 31 years. European countries are posting similar highs as well, but so far neither the US Federal Reserve nor the European Central Bank appears as close as the Bank of England in looking at increasing borrowing costs.
For British homeowners and those looking to borrow, a rate hike before Christmas is the last thing they want as everything else appears to be heading higher.
“With prices rising faster than payment, many families will struggle to keep up with basic living costs, not to mention the Christmas festivities,” said Frances O’Grady, Secretary General of the Parachute Congress of Trade Unions.
Associated Press reporter Danica Kirka contributed to this report.
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