UK Inflation Falls More Than Expected, Easing Cost-of-Living Crisis
UK inflation fell more than expected in October, according to data released by the Office of National Statistics (ONS) on Wednesday. The Consumer Prices Index (CPI) dropped to a two-year low at 4.6%, dipping below the five-percent target set by Prime Minister Rishi Sunak. This news comes as a relief to Sunak, who has been facing pressure within his Conservative party ahead of next year’s general election.
The fall in CPI inflation was greater than what was forecasted by the Bank of England and analysts, after reaching a high of 6.7% in September. “Official figures…confirm we have halved inflation, meeting the first of the five priorities I set out at the beginning of this year,” said Sunak. However, he emphasized the importance of continuing efforts to bring inflation down to the Bank of England’s target of 2%.
This decline in inflation is seen as a positive development for the UK, as annual inflation hit a 41-year peak of 11.1% in October 2022. This surge was mainly driven by soaring energy prices following Russia’s invasion of Ukraine, as Russia is a major oil and gas producer.
Grant Fitzner, chief economist at the ONS, explained that last month’s substantial drop in inflation was primarily due to easing energy costs following the significant rise in prices last year. “Food prices were little changed on the month, after rising this time last year, while hotel prices fell, both helping to push inflation to its lowest rate for two years,” Fitzner added.
Analysts believe that the sharp decline in the annual inflation rate could prompt Finance Minister Jeremy Hunt to cut taxes in his upcoming budget announcement next week. They attribute the decrease in UK inflation since the beginning of the year to interest-rate hikes implemented by the independent Bank of England and cooler energy prices worldwide. Similar interest-rate hikes by other major central banks, including the US Federal Reserve and the European Central Bank, have also contributed to lowering elevated inflation in the world’s largest economy and the eurozone.
However, it should be noted that global inflation remains high, with the Fed, Bank of England, and European Central Bank all targeting an annual inflation rate of 2%. Economists have warned that if inflation remains stubbornly high, central banks may be forced to maintain high interest rates for a longer period, potentially leading to a recession in major economies.
In more positive news, official UK data released on Tuesday showed that wages growth was above CPI inflation. Danni Hewson, head of financial analysis at investment platform AJ Bell, described this as a double-edged sword. “People are finally feeling the benefit in their pay packets, and with inflation expected to have cooled significantly last month, it is an indication that the worst of the cost-of-living squeeze might be over,” said Hewson.
Overall, the fall in UK inflation brings some respite to the cost-of-living crisis faced by UK citizens, and provides a boost to Prime Minister Rishi Sunak. However, experts warn that global inflation remains a concern, and central banks may need to continue their efforts to combat rising prices. The upcoming budget announcement by Finance Minister Jeremy Hunt will be closely watched as potential tax cuts could be introduced to support economic recovery.
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