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Inflation hits 41-year high of 11.1% in October
The latest inflation figures from the Office for National Statistics (ONS) revealed that inflation as measured by the Consumer Prices Index (CPI) has hit 11.1% for the year to October 2022. The highest level seen in the UK since October 1981, 41 years ago.
This is up from 10.1% in September, continuing the trend of worrying increases month-on-month. Economists polled by Reuters had been anticipating a rate of inflation of no more than 10.7% for October.
Once again, the rate of inflation exceeds expectations and heaps even more pressure onto all of us, especially those who are already struggling with the basic cost of living.
It should be noted that UK’s rate of inflation is no longer the highest amongst G7 countries, with Italy’s rate hitting 12.8% in October. This comparison will bring little comfort to most, however.
The Government’s Response
“We cannot have long-term, sustainable growth with high inflation. I will set out a plan to get debt falling, deliver stability, and drive down inflation while protecting the most vulnerable,” – Chancellor Jeremy Hunt.
The Government response was swift, with Hunt also confirming during Thursday’s Autumn Statement that they would be committing to the state pension’s triple lock guarantee – ending recent speculation.
This is very reassuring news for pensioners who will effectively see their state pensions rise by as much as £870 next year, keeping in line with inflation and marks the highest ever single increase to the state pension. The Chancellor closed by addressing pensioners, saying “this Government is on your side”.
In addition, the national living wage will also see the single highest increase of all time of 9%, with the minimum wage for different age groups seeing a similar increase.
However, the Chancellor also confirmed what many already feared – that the UK economy is in recession, with GDP due to fall by 1.4% in 2023 based on the forecasts by the Office for Budget Responsibility (OBR). According to the Chancellor, one third of the world’s economy will be in recession by the end of next year.
"They [OBR] confirm that our actions today help inflation to fall sharply from the middle of next year. They also judge that the UK, like other countries, is now in recession,” said Hunt.
According to the OBR watchdog, household disposable income is expected to drop by 7.1% in real terms over this year and next year combined, marking it as the biggest drop since records began in 1956. This means that it will still be below pre-pandemic levels in 2027.
Much of this is being done in an effort to aggressively tackle the rising rate of inflation in the hope that the UK will never have to experience the dreaded hyper-inflation that some countries are currently facing.
Why does inflation keep rising?
The sharp rise in the year to October is being attributed primarily to the prices of gas, electricity and food, all of which are seeing large price increases. well above the official rate of inflation for the UK.
For example, according to the ONS report, food prices are experiencing an average of 16.5% inflation. This is the highest rate of inflation seen in food prices for 45 years.
However, the crisis in Ukraine cannot be ignored in the debate around UK inflation rates. Russia’s invasion of Ukraine has caused severe disruption to global supply chains, as well as instability in global markets. Jeremy Hunt marked Russia’s aggression in Ukraine as a primary aggravating factor, calling it the “made-in-Russia energy crisis”.
This is especially apparent for fuel supply chains, as fuel was one of Russia’s largest exports. Now that Russia is beginning to feel the sanctions imposed by the west, the rising costs are inevitably passed down the supply chains until they reach every-day people.
With the additional financial ramifications of the Ukraine crisis still not being completely understood, and inflation currently showing no signs of slowing amid stealth taxes from freezing allowances, it’s more important than ever to seek financial advice if you’re at all concerned about your financial future.
If you want to find out more, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to find out how can help.