Follow Us on Google News
LONDON: Surging household energy bills and food prices pushed British inflation to a 41-year high, data showed a day before finance minister Jeremy Hunt announces “tough but necessary” tax hikes and spending cuts to control price growth.
Consumer prices rose 11.1% in the 12 months to October, the most since October 1981 and a big jump from 10.1% in September, the Office for National Statistics said on Wednesday.
Economists in a Reuters poll – many of whom think inflation is probably peaking around now – had forecast inflation would rise to 10.7%.
Inflation would have risen to around 13.8% in October had the government not intervened to limit the price of household energy bills to 2,500 pounds ($2,960) a year on average, the ONS said.
In response to the data, Hunt – who is due to outline a new budget on Thursday – said “tough but necessary” decisions were required to tackle rising prices.
“It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances,” he said in a statement.
Read more: Japan’s economy unexpectedly shrinks as hot inflation, global slowdown take toll
Analysts said the jump maintained pressure on the BoE to keep on raising interest rates but the scale of austerity due to be announced on Thursday could mean borrowing costs need to go up by less.
“The UK is in a fairly unique situation where the government is planning a vast programme of measures to help balance its books,” Ellie Henderson, an economist with Investec, said.
“The scale of fiscal tightening proposed will no doubt drag on economic growth and as such should bring inflation down with it, opening the door for the Bank of England to tighten policy at a less aggressive pace.”
But Mike Bell, global market strategist at J.P. Morgan Asset Management, said Wednesday’s data suggested inflation pressures from the tight labour market had been under-estimated and the BoE would probably raise rates to a peak of 4.5% from 3.0% now.
“These numbers sit uncomfortably alongside the message sent from the Bank of England … when it argued that only modestly higher interest rates would be necessary to bring inflation back towards its 2% target,” Bell said. “We are not so convinced.”
The BoE had predicted inflation of 10.9% in October in forecasts published this month.
