The inflation rate rose to 10.1% in September, according to official figures, as the economy suffers from the impact of rising prices and the consequences of the mini-budget.
The Office for National Statistics (ONS) said the consumer price index (CPI) rose to a recent 40-year high in July from an annual rate of 9.9% in August.
The report showed that the biggest contributor was to the upside food costswhile fuel provided the greatest downward pressure.
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According to the ONS, the pace of food price increases was at its highest rate since April 1980, at an annual rate of 14.6%, with bread and cereals, meat products, milk, cheese and eggs leading the increases, the ONS reported.
It is mainly a consequence of the impact caused by Russia war in Ukraineand the response from Western sanctions, which have led to increases in the cost of energy and other raw materials, which have been passed along the supply chain to buyers.
Households and businesses also face greater uncertainty after the Sept. 23 mini-budget tax and giveaway were largely scrapped following a strong rejection from financial markets.
Now only 12 days remain for the new chancellor Jeremy Hunt Finding ways to gain economic confidence – and to close the UK’s funding gap – ahead of the 31 October ‘medium-term fiscal plan’ and an analysis of the situation by the Office for Budget Responsibility (OBR).
Impact on benefits and pensions
The lack of clarity about government spending plans leaves millions of retirees and beneficiaries in limbo.
That’s because September’s inflation numbers affect how their payments are raised.
If the government decides to raise benefits through inflation, the increase will take effect from April next year.
The September value is also used for the review of the triple lock pension commitment.
The triple lock means pensions will rise by either average earnings, CPI inflation based on the September rate, or 2.5% – whichever is highest.
With average earnings recently at 5.4%, the triple lock should ensure that pensions in April next year will rise by the rate of inflation.
However, on Tuesday Downing Street hinted that ministers could abandon their commitment to the triple lockdown as Mr Hunt finds ways to reclaim funds.
The Financial Times reported Wednesday morning that he could improve bank profits and potentially take a larger share of energy company profits to balance the books.
Household finances are widely faced with greater uncertainty after Mr Hunt confirmed that the universal energy price guarantee, which caps wholesale costs, would end in April and would likely be more heavily targeted in the months that followed.
It threatens to fuel inflation next spring should the majority of energy bill payers be in line Energy price ceiling forecasts of around £4,000 annually.
Commenting on the inflation data, Chancellor Merkel said: “I understand that families across the country are struggling with rising prices and higher energy bills.
“This administration will prioritize aid to the most vulnerable while ensuring broader economic stability and driving long-term growth that benefits all.
“We have acted decisively to protect households and businesses from a significant increase in their energy bills this winter, with the government’s energy price guarantee keeping peak inflation low.”
Commenting on the latest price picture, Darren Morgan, director of economic statistics at ONS: “The rise was driven by further increases in food, which posted its largest annual increase in over 40 years, while hotel prices also rose after last falling this year .
“These increases were partially offset by the continued decline in fuel costs, with airfares falling more than usual for this time of year and used car prices also rising less than last year’s big increases.
“Although costs to businesses are still at historically high levels, they are starting to rise more slowly, with crude oil prices actually falling in September.”