The cost of living has increased at the fastest pace in almost 10 years, new figures show.
The UK’s Consumer Prices Index (CPI) rose by 4.2% in the 12 months to October 2021, up from 3.1% in September, the Office for National Statistics (ONS) said.
This takes inflation to more than double the Bank of England’s target of 2%.
It’s a bigger jump than economists had predicted and adds to the pressure on the central bank to raise interest rates.
The rise in inflation was driven by increased household energy bills, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels, according to ONS chief economist Grant Fitzner.
“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.
The Bank of England said previously that it may raise interest rates in the coming months to tackle rising prices.
Sir John Gieve, a former member of the Bank’s Monetary Policy Committee which sets interest rates, told the BBC’s Today programme that October’s high inflation figures were not “a one-off”.
“The Bank and other forecasters expect it to rise right the way through to April, and then to stay well above target for the rest of the year,” he explained.
Yael?Selfin, chief economist at KPMG UK, said that the latest ONS figures “will reinforce the Bank of England’s resolve to act”.
Consumer prices in the UK rose by 3.1% in the 12 months to September 2021, down from 3.2% in August, according to the latest monthly figures.
Higher prices for transport were the biggest contributor to price rises, while a downward contribution came from the unwinding effect of last year’s ‘Eat Out to Help Out’ scheme, the Office for National Statistics (ONS) said.
Commenting on the monthly data, the British Chambers of Commerce (BCC) said that the dip in the Consumer Prices Index (CPI) reflected “temporary data distortions rather than the reality on the ground”.
“The slowdown was largely due to strong base effects caused by dining out costing less last month in comparison with September 2020, when prices increased following the end of the ‘Eat Out to Help Out’ scheme,” explained Suren Thiru, head of economics at the BCC.
Thiru added that a further inflationary surge is expected in the coming months “with the increase in the energy price cap, partial reversal of the VAT reductions for hospitality and tourism and persistent supply chain disruption”.
And he warned that rising inflation could disrupt the UK’s economic recovery by diminishing people’s spending power and firms’ profit margins.
The Bank of England signalled this week that it would act over rising inflation, suggesting that interest rates may increase soon.
But Thiru cautioned: “While inflation is uncomfortably high, the Bank of England must hold its nerve on interest rates. Raising rates at a time of escalating cost pressures and looming tax rises would severely undermine an already fragile recovery.”
Higher prices for fuel and clothes pushed the UK’s consumer price inflation rate to 0.7% in the 12 months to March, according to the latest report from the Office for National Statistics (ONS).
It comes after inflation dipped to 0.4% in February.
Fuel prices showed their biggest annual increase since January 2020, the ONS said.
The March figure would have been higher without a fall in food prices. In the year to March, overall prices for food and non-alcoholic beverages declined by 1.4%, particularly due to lower prices for bread, cereals and confectionery.
“The rate of inflation increased with petrol prices rising and clothes recovering from the falls seen in February,” said ONS deputy national statistician Jonathan Athow.
“However, food prices fell back on the year, as prices of some staples were lower than at the start of the pandemic.”
The Bank of England has forecast that UK inflation will reach 1.9% by the end of 2021, while many economists say it will exceed 2% before then.
The UK’s inflation rate fell to 0.3% in November from 0.7% in October, according to the latest monthly report from the Office for National Statistics (ONS).
Lower prices for clothing, food and non-alcoholic drinks made the biggest contribution to the fall.
These were partially offset by higher prices for games, toys and other recreational activities as people looked for ways to entertain themselves at home during the second Covid-19 lockdown.
In its report, the ONS noted that clothing and footwear prices have followed a different pattern in 2020 compared with previous years. There was increased discounting during March and April, probably in response to the first lockdown. Prices then remained relatively stable to August. Between August and October, prices broadly increased as usual, but this has been followed by a fall between October and November, whereas prices normally rise between these two months when the autumn ranges come in.
Ruth Gregory, senior UK economist at Capital Economics, quoted by the Daily Telegraph, said that the sharp fall in inflation “came as a bit of a surprise”. She added:
“Some of these moves were driven by temporary factors so we still expect inflation to rise temporarily back towards the 2% target next year. Beyond that, though, the slack in the economy should keep underlying price pressures subdued and allow inflation to drop back to 1.5% in 2022. That is unless a no-deal Brexit pushes it up to a peak of 3-4%.”