UK inflation rises back to 40-year high

Inflation in the UK has spiked back to its 40-year high in September as food and energy prices rose. But it may reach a peak as households cut back on expenses amid economic shocks. 

As reported Wednesday by the Office for National Statistics (ONS), overall inflation jumped to 10.1% in September from 9.9% in August. This figure corresponds with July’s high. 

According to the ONS, rising food prices were the main driving force of acceleration in inflation, rising 14.6% year-on-year. 

The return to double-digit inflation and change in interest rate will be on the agenda of the Bank of England meeting that is scheduled for Nov. 3. Governor Andrew Bailey has noted that a “stronger response” with rates may be needed to tackle inflation. 

The central bank will evaluate rising price pressures against the cancellation of the unfunded tax cuts, which could lead to lower inflation in the coming months.

According to James Smith, developed markets economist at Dutch bank ING, the scaling back of fiscal support will be seen as a decline in medium-term inflation. This is what the authorities are focused on. 

They are now expected to raise rates by three-quarter points next month, instead of by a full percentage point. ING economists believe inflation will reach a peak this month and will come down next year. Easing supply chain issues and declining consumer demand will drive it. 

The price rise comes as wage growth in the UK continues to decline. According to the ONS, UK workers take a 2.9% hit on real wages between June and August, adjusted for inflation. This followed a 3% drop between April and June, which was considered the biggest fall in real wages in more than 20 years. 

The government is facing calls to slash public spending to deal with unsustainable debt burden, which also puts households under pressure. 

According to the latest figures from the ONS, rising prices in September were partially offset by a decline in fuel prices and airfares. Director of economic statistics Darren Morgan noted that the costs facing businesses were going up more slowly, with crude oil prices settling lower in September, despite a high rate of inflation. 

Accelerating inflation has become the major problem for policymakers around the world and particularly across Europe. Soaring food and energy costs pushed the annual inflation rate to 9.9% in September. In August, the rate was at 9.1%.