UK Inflation Rate Drops In the UK, the rate at which prices rise has fallen to 4.6% in the year to October. This is a decrease from 6.7% in the previous year to September. A significant reason for this drop is cheaper energy prices.
Bank of England’s Response To fight inflation, the Bank of England raised interest rates to 5.25%. However, it kept rates steady in September and November.
What is Inflation? Inflation means the cost of goods increases over time. For example, if milk costs £1 and then £1.05 a year later, the annual inflation for milk is 5%.
Measuring Inflation in the UK The Office for National Statistics (ONS) tracks prices of many items in a “basket of goods”. This basket changes regularly to match shopping trends. The inflation figure each month shows price rises compared to the previous year. The Consumer Prices Index (CPI) is the main measure of inflation. In October, the CPI was 4.6%.
Why Did Prices Rise? Increased food and energy bills drove inflation up. After Covid, demand for oil and gas rose. The war in Ukraine reduced supply from Russia, increasing prices. This also affected global food prices due to less grain availability. In the UK, a vegetable shortage pushed food inflation to a 45-year high.
Impact of Raising Interest Rates The Bank of England aims to keep inflation at 2%. Raising interest rates makes borrowing costlier. This can lead to higher mortgage payments and saving rates. It reduces spending, slowing down price rises. Businesses may borrow less and cut jobs.
Future of Inflation Lower inflation doesn’t mean prices fall, but they rise more slowly. The Bank of England expects inflation to drop to around 4.5% by year-end and further in 2024. The IMF predicts the UK will have high inflation rates in 2023 and 2024. Prime Minister Rishi Sunak aims to halve inflation by the end of 2023.
Wages and Inflation Average pay excluding bonuses rose by 7.7% annually between July and September. This is higher than the inflation rate, meaning real wages grew. However, pay rises are slowing in some sectors.
Inflation and Interest Rates Globally Other countries face similar cost-of-living issues. In the Eurozone, annual inflation was 2.9% in October, down from 4.2% in September. The European Central Bank (ECB) raised interest rates to 4%. In the US, inflation was 3.2% in October, with interest rates between 5.25% and 5.5%.
