Inflation hits fresh four-decade high of 11.1%

It is hoped that the worst is now behind us, but tough times still lie ahead.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The jump in household energy costs and food prices has catapulted UK inflation to a fresh four-decade high of 11.1% in October.

“The ongoing price increases underscore the brutal impact that inflation has inflicted on many households with the costs of necessities, in particular, rising much faster than average incomes. A glimmer of optimism in the figures was that core inflation, which strips out price movements in food, energy, alcohol and tobacco, held steady at 6.5% in October - the same rate as in September.

“The rate of inflation is lower than predictions earlier in the year, and this will offer some relief to Britons and the economy, although jumps in the prices of everyday essentials means that we’re not out of the woods yet.

“It is hoped that the worst is now behind us, with inflation expected to ease back as the price of energy won’t continue to rise so quickly following the introduction the energy price guarantee scheme freezing energy bills at £2,500 per year for the typical household until April. The loosening of post-pandemic supply bottlenecks and the rise in borrowing costs curtailing consumer demand (in theory) are also having a cooling effect on sizzling inflation.

“But energy prices, one of the biggest drivers to inflation, remain a big unknown after the universal household energy price cap expires in April. The government has indicated that there will be more targeted support thereafter, which could trigger fresh spikes in energy bills for many households – resulting in another cost-of-living squeeze on budgets come spring.

“Tomorrow’s Autumn Statement could hold even more gloomy news for Britons, with the chancellor confirming over the weekend that everyone will have to may more tax and there will be cuts to public spending in a bid to get a handle on the UK’s growing debt load.

“The Bank of England doesn’t anticipate a sharp fall in inflation until the middle of next year, which means the cost-of-living stranglehold on household budgets looks set to remain for some time. The impact of inflation is unique to every individual because spending habits vary greatly from person to person - meaning someone’s personal inflation rate might end up being lower, or higher, than the overall index. As such, it is worth keeping tabs on your spending habits to get a better idea of the goods and services that are eating most into your budget, and where you could cut back.”