UK Inflation Drops from 41-year High but Food & Energy Prices Continue to Soar

UTC by Tolu Ajiboye · 3 min read
UK Inflation Drops from 41-year High but Food & Energy Prices Continue to Soar
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The latest UK inflation report showed a fall from 11.1% to 10.7%, lower than the 10.9% analysts were expecting. 

UK inflation recently dropped from its 41-year high on cooling fuel prices, although high food and energy prices continue to bedevil consumers.

UK inflation came in at 10.7% last month, slightly below the polled analysts’ 10.9% consumer price index (CPI) projection. In October, inflation in the country hit an 11.1% record high, but the latest November entry represents a 0.4% dropdown.

Closer Look into Latest UK Inflation Data

According to the Office for National Statistics, “housing and household services” was the most significant upward contributor. This category included fuels such as gas and electricity, in addition to food and non-alcoholic beverages. Meanwhile, the most significant downward contributor for the month was “transport,” especially motor fuels. Furthermore, rising costs in cafes, pubs, and restaurants accounted for the “largest, partially offsetting, upward contribution.”

The drawback in the latest inflation data is a welcome relief. However, persistent rising food prices and consumer energy bills continue to pose a problem for the British government. Quilter Cheviot head of fixed interest research, Richard Carter, noted that this price imbalance is more worrisome now given the winter season. He remarked:

“Temperatures have taken a sharp dive in the last week or so, and the demand for gas will no doubt have increased as people are forced to heat their homes.”

In addition, Carter stated:

“As the autumn had been rather mild, we will only now begin to see the real impact of higher energy bills. While the government support remains in place for now, any changes made once the April deadline is reached could have a knock-on effect on inflation.”

Bank of England Ponders Next Fiscal Move amid Widespread Labor Discontent

The UK currently faces widespread industrial action over the Christmas period, and the Bank of England appears set to announce its next fiscal move Thursday. Amid labor agitation for pay rises closer to the inflation rate and improved working conditions, BoE will likely hike interest rates by 50 basis points. However, Carter pointed out that while inflation is abating, it remains far ahead of wages. He also suggested that there may be unsavory consequences from the current workers’ discontent heading into the biting winter cold.

The apex bank is already walking a tightrope with runaway inflation and an economy wallowing in its longest-ever-recorded recession. The Bank of England looks to reel inflation back towards its 2% target while keeping an eye on a severely weakened economy. Amid this harrowing period, the Office for Budget Responsibility projected that the UK would plunge further in living standards to record depths. According to the independent fiscal watchdog, real household income could decline 4.3% in 2022/23.

Finance Minister Jeremy Hunt announced an airtight fiscal plan in November to adequately address the substantial deficit in the UK’s public finances. This £55 billion ($68 billion) agenda included several tax increases and spending cuts.

In the US, inflation is also declining, evidenced by the latest CPI report. Regardless, the Federal Reserve appears set to hike rates by a reduced 50 basis points today.

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Tolu Ajiboye
Author Tolu Ajiboye

Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.

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