Business|Inflation in Britain Reaches 11.1 Percent, Led by Energy Costs
Prices in October rose at the fastest rate in more than 40 years, deepening the country’s cost-of-living crisis.
Nov. 16, 2022Updated 3:11 a.m. ET
Britain’s cost-of-living crisis deepened in October, as consumer prices surged 11.1 percent from a year earlier, the highest in more than 40 years, granting no relief to households struggling to keep up with large increases in the price of food, heating and gas.
The increase, which was higher than expected, came after the annual inflation rate had reached 10.1 percent in September. On a month-to-month basis, the Consumer Prices Index rose 2 percent from September to October.
Despite a government support plan designed to shield households and businesses from the scourge of skyrocketing energy bills, gas and electricity prices were the biggest driver behind the sharp run-up in consumer prices, the Office for National Statistics said. The price of food also marched higher, for the 15th straight month, as supermarkets continued to pass on increases in production costs.
“Staggeringly, consumer prices jumped up by 2 percent in one month, which is equivalent to the Bank of England’s target for the rise in prices over the course of a whole year,” Jake Finney, an economist at PwC, said in a note.
Britain’s inflation rate again surpassed that of the eurozone, fueling the worst cost-of-living crisis in four decades. It comes as households and businesses grapple with the prospect of a drawn-out recession. The British economy shrank 0.2 percent between July and September compared with the previous three months, and central bankers have warned of a “prolonged” downturn lasting up to two years.
Continued cost increases are of particular concern to businesses, including thousands of small companies that make up the backbone of the British economy. “Far from peaking, inflation continues to rise,” the British Chambers of Commerce said in a statement. “We speak to thousands of businesses who tell us this is unsustainable.”
A broader recession is expected to spread to the continent by the end of the year, with countries from France to Finland facing a double blow of rising inflation and slowing or declining growth. Russia’s war in Ukraine, and retaliatory sanctions against Russia by European countries, have caused global fuel, food and fertilizer prices to soar.
Wages in Britain increased 5.7 percent in the third quarter, their fastest pace in 20 years, as people re-entered the work force following the end of Britain’s pandemic lockdowns. But inflation is rising so fast that it is outstripping those gains, leaving households struggling to keep up.
And some of the employment gains mask an underlying precariousness, with many people re-entering the labor market as self-employed workers. When adjusted for rising prices, wages overall fell by 2.7 percent in September.
To bring inflation down, the Bank of England is trying to curb economic growth with a series of interest rate increases. Earlier this month the central bank raised interest rates by three-quarters of a point to 3 percent, the highest since 2008. Analysts at ING said the bank was likely to raise rates by another half point in December.
But the moves have put further financial pressure on homeowners already worried about rising costs, because they keep mortgage rates high and will have the effect of cooling an economy that is already slowing down. The cost of housing and household services jumped by over 26 percent in October from a year ago.
Inflation should start to come down slowly starting next year as energy costs peak, Pantheon Macroeconomics, a research firm, said in a note to clients. But overall living and business costs will remain “extremely dependent on the government’s approach to subsiding energy prices,” the firm said.
Britain’s economy is also suffering from a series of self-inflicted wounds by the governing Conservative Party. The prime minister, Rishi Sunak, has made it clear that he intends to take a tougher approach to public finances after a period of turmoil under the preceding leader, Liz Truss, who pushed economic policies during a short-lived tenure that threw Britain into financial turmoil.
On Thursday, Mr. Sunak and the chancellor of the Exchequer, Jeremy Hunt, are expected to announce tax increases and spending cuts alongside a plan to cut Britain’s debt.
The statement is expected to detail spending and tax policies in line with lowering Britain’s debt burden. It will be accompanied by forecasts from the Office for Budget Responsibility, an independent government watchdog that will assess the impact of the government’s policies on the economy and public finances.