UK inflation reached 11.1% in October leading experts to warn that chancellor Jeremy Hunt will need to tread carefully in his Budget tomorrow.
Consumer prices index (CPI) prices was up from 10.1% the month before, with the rising price of electricity, food and fuel being the main contributors to October’s spike.
Reduced imports of gas from Russia have brought up prices considerably, with the cost of household services rising to its highest level on record, increasing from 9.3% in September to 11.7% last month.
Indeed, it is estimated that the average household is paying 88.9% more on gas and electricity bills than it was a year ago, according to the Office for National Statistics (ONS).
Former prime minister Liz Truss attempted to alleviate some of these price hikes during her short time in office by introducing the Energy Price Guarantee, which froze household energy bills at £2,500 for two years.
However, Rishi Sunak reduced it down to six months when he stepped into the role, which could result in a fresh spike of energy price hikes by spring, according to Myron Jobson, senior personal finance analyst at interactive investor.
Many households felt somewhat reassured by the price cap’s long-term protection against rising costs, but they will now have to prepare for yet another squeeze on their budgets come April.
New measures announced by Hunt in the Autumn Statement tomorrow will have a significant impact on the UK’s economic outlook, according to Garry White, chief investment commentator at Charles Stanley.
With the stakes so high, he said that the plan presented tomorrow will make it “the most significant budget statement from a UK government for many years”.
He added: “Protections put in place to shelter consumers from any price jump when the current protections end in less than six months’ time will be a major factor determining the health of British household finances next year.”
Hunt’s fiscal plan could include more specific protections for some households against rising energy bills, but Jobson said that it will most likely spell “even more gloomy news for Britons”.
With the UK’s debt growing substantially, the chancellor is expected to raise taxes on households and cut public spending to fill the hole in the country’s expenses.
Indeed, Charles Hepworth, investment director at GAM Investments, said that tomorrow’s statement “promises further austerity and tax rises across the board”.
“The outlook is grim for the economic fortunes of the UK – so far, the promised Brexit ‘sunlit uplands’ have only been a continual rolling season of discontent,” he said.
Nevertheless, these measures may not be in vain – Hunt’s anticipated tax hikes paired with the Bank of England’s (BoE) high interest rates could begin to ease inflation down from here, according to Alice Haine, personal finance analyst at Bestinvest.
The central bank has already raised rates to 2.25% in an effort to slow rising inflation, which remains significantly above its annual target of 2%. Analysts are forecasting that rates could reach as high as 3% at the next Monetary Policy Committee meeting on 15th December.
Some predicted that the BoE would raise rates in smaller hikes following its last meeting, but Mike Bell, global market strategist at JP Morgan, said that he was “not so convinced” that modest increases would be enough to slow inflation.
Inflationary pressure from the UK’s tight labor market has been an underestimated factor in the cost-of-living crisis, he argued and with so many unfilled vacancies available, workers have been able to demand higher wages. Until wage-push inflation eases, Bell anticipates interest rates to peak at 4.5%.
He said: “With headline inflation expected to stay elevated for some months yet, workers may still ask for more pay to protect disposable income.
“Until it is clear weaker activity is starting to weigh on wage demands, we believe the Bank of England will have to keep hiking.”