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The United Kingdom is currently in one of the most troubling recessions on record as the Bank of England has continued to exert monetary policies to control inflation.
The growing inflation in the United Kingdom (UK) is becoming more worrisome as the latest data shows the inflation in the month of October was pegged at 11.1%. This data released by the Office for National Statistics (ONS) is the highest in 41 years, sending a more straining signal that Rishi Sunak’s led government has more headwinds to contend with in the near term.
The growth in inflation contributed majorly to the high costs of electricity, gas, and other fuel sources.
“Indicative modelled consumer price inflation estimates suggest that the CPI rate would have last been higher in October 1981, where the estimate for the annual inflation rate was 11.2%,” the ONS said.
While the annual Consumer Price Index growth was high, it was moderate when compared on the month on month basis as it grew by just 2%. The cost of housing and household services shot up by an All-Time High (ATH) of 11.7% in October. This figure grew from 9.3% in September this year.
“In October 2022, households are paying, on average, 88.9% more for their electricity, gas, and other fuels than they were paying a year ago,” the ONS said. “Domestic gas prices have seen the largest increase, with prices in October 2022 being more than double the price a year earlier.”
While energy prices remain high, the contributions of foods and drinks especially non-alcoholic beverages rose by 16.4% through October 2022. This inflation in foods is the highest since 1977.
UK Inflation and Government Response
The United Kingdom is currently in one of the most troubling recessions on record as the Bank of England has continued to exert monetary policies to control inflation. Recently, the Bank of England hiked interest rates by 75 basis earlier this month, raising the total bank rate to 3%. With the current events, the bank is likely to continue raising interest rates until the overall bank rate hits 4.5%.
Mike Bell, global market strategist at JPMorgan Asset Management said the inflation figures are antagonistic to the actions of the Bank of England which posits that a hike in interest rates will rein in inflation.
“We are not so convinced. What has been underestimated consistently has been the inflationary pressures stemming from the tight labour market,” Bell said. “Although vacancies and employment eased marginally in yesterday’s labour market report, wage growth continued to push higher. With headline inflation expected to stay elevated for some months yet, workers may still ask for more pay to protect disposable income.”
By tomorrow, UK Finance Minister Jeremy Hunt is set to deliver a new fiscal statement. Amongst the things that are expected to be delivered is a new stealth tax hike that will cut across in a bid to cushion the £50 billion-plus deficit that is currently visible in the government’s purse.
All in all, the UK inflation growth and the monetary policies are expected to be at par in order to achieve equilibrium, the timing for this, however, is what remains unpredictable.