(The Times) Inflation outstripped forecasts and surged above 4 per cent last month to hit its highest level in almost a decade as spiralling energy prices pushed up the cost of living.
The consumer prices index rose to 4.2 per cent in October, higher than the 3.9 per cent that had been expected by economists and up from 3.1 per cent a month earlier, official figures from the Office for National Statistics (ONS) showed.
October’s reading was the highest since December 2011 and will fuel expectations that the Bank of England will be forced to act soon to contain inflation by lifting interest rates from their record lows.
The jump last month was driven mainly by rising household energy costs following the lifting of the energy price cap by Ofgem, the industry regulator. The data showed gas prices had surged by 28.1 per cent in the past 12 months.
Rising petrol prices also contributed to the inflation surge, as did the increase in VAT on the hospitality and tourism industry from 5 per cent to 12.5 per cent at the start of October.
Yet there were also strong price rises in other areas. A global shortage of semiconductors that has hit the production of new cars has fuelled demand for second-hand vehicles, driving the annual inflation rate for used cars to 22.8 per cent, according to the ONS.
Policymakers at the Bank confounded financial markets this month by keeping benchmark rates at 0.1 per cent, even though inflation is soaring above the Bank’s 2 per cent target. Rates were cut to an all-time low at the start of the coronavirus pandemic to support the economy through the crisis.
The Bank’s ratesetters on its monetary policy committee are due to meet again next month.
Yael Selfin, the chief economist at KPMG UK, said: “Today’s inflation data will reinforce the Bank of England’s resolve to act.”
Andrew Bailey, the Bank governor, has said that one of the key areas of the economy that ratesetters are watching before making their decision is the labour market following the winding down of the government’s furlough scheme at the end of September.
Official data released yesterday showed that employers added 160,000 people to their payrolls, lifting the total to 29.3 million and indicating that the end of the furlough scheme has not harmed the jobs market.
“Coming after yesterday’s decent labour market release, this makes an interest rate hike in December even more likely,” Paul Dales, the chief UK economist at Capital Economics, said of the CPI jump.
The Institute of Directors, which is one of Britain’s leading employers’ groups, urged the Bank to act. Kitty Ussher, its chief economist, said: “With interest rates at historic lows, we’re calling on the Bank of England to show it means business and get inflation expectations back in line with their mandate.”