Another blow for British households. On the eve of a budget presentation which should sign the return of austerity in the country, inflation in the United Kingdom reached 11.1% over one year in October, its highest rate since 1981.
A faster acceleration than that expected by economists, in particular due to energy bills. It had already reached 10.1% the previous month, a four-decade high, according to the National Statistics Office (ONS).
“The rise in gas and electricity prices has pushed inflation to its highest level in more than forty years”despite the price cap put in place by the government, said Grant Fitzner, chief economist of the ONS, on Twitter on Wednesday.
According to the statistical institute, gas prices have jumped by almost 130% over the past year, and electricity has soared by 66%. But food price hikes have also helped push inflation to this peak.
Unemployment rises, wages fall
Economists and the Bank of England expected inflation to come close to, but not exceed, the rate of 11% before beginning its descent. To complete this gloomy picture, the Bank of England estimates that the country has already entered a long recession. The unemployment rate rose slightly again, to 3.6% at the end of September, according to figures released on Tuesday.
Real wages, that is to say adjusted after price increases, continue to decline, fueling cascading strikes in the country and calls to tax the profits of energy giants more.
“October could mark a turning point: we expect the inflation rate to start falling in the coming months”due to weaker growth and less constrained energy supply, which “could alleviate pressure on prices”, believes however Yael Selfin, economist at KPMG. But this will take time : “Inflation could stay above the Bank of England’s 2% target until mid-2024”she warns.
Government cuts household aid
Massive aid to households in the face of energy bills had been announced by the previous government, that of Liz Truss, to cushion the rise in prices, thus capped at 2,500 pounds sterling (more than 2,800 euros) per year for an average household. Initially planned to last two years, this aid was reduced to six months by the current Chancellor of the Exchequer, Jeremy Hunt.
“The shock of Covid and the invasion of Ukraine by [le président russe Vladimir] Putin is driving up inflation in the UK and around the world”hitting household wallets and “hindering any chance of long-term economic growth”, responded Mr. Hunt in a statement on Wednesday. The Chancellor reiterated that he would announce on Thursday “difficult decisions” for “reducing debt, ensuring stability and lowering inflation while protecting the most vulnerable”.
Tens of billions of pounds in spending cuts and tax hikes are expected. “We must take decisive action [au Royaume-Uni] to put our borrowing and debt on a sustainable path” and so “fight against inflation”insisted, since the G20 summit in Bali, Prime Minister Rishi Sunak.
Repairing Liz Truss’ Damage
Mr Hunt will speak to Parliament on Thursday and will notably have to finish repairing the damage of the “mini budget” of the previous government of the ephemeral Prime Minister Liz Truss, which had panicked the markets with its massive energy aid and all-out tax cuts. But his tone reminds the British of the severe austerity package imposed in the wake of the 2008 financial crisis, which resulted in deep cuts in public services.
“Even if October marks the peak of inflation, the battle is not yet won”according to Paul Dales, of Capital Economics, which explains, according to him, the announcements to come from the Minister of Finance, but also “why the Bank of England may have to raise rates again”. The Central Bank has steadily increased its key rate in recent months in an attempt to calm inflation. It is now set at 3%.