Inflation rates for September have been reported at 3.8%, avoiding the previously anticipated 4%. While this has brought some relief to households, the government, and the Bank of England, the figure remains significantly above the Bank’s target of 2%. This persistent inflation could contribute to consumer hesitance regarding spending due to uncertainty about future price trends.
The inflation experienced over the past couple of years was notable, with consumers facing more price increases in two years than typically encountered over a decade. Certain sectors, particularly services like hospitality, continue to experience stubborn inflation. Analysts suggest that rising wage bills in these areas—potentially increasing by as much as 10%—have been influenced by government policies, including higher minimum wages and tax hikes.
However, there are observable signs of stabilization in some areas. Food prices have shown a slight decline for the first time in several months, though food comprises only a small portion of the overall basket of goods used for inflation measurement. Economists anticipate that the heightened costs that firms have been passing onto consumers may be nearing their peak, and they expect inflation to trend back toward the 2% target in the coming year.
While average wage increases are currently outpacing inflation, easing the cost-of-living pressures for many, the government has indicated that future uplift to benefits, including a potential 6% increase in universal credit payments, may follow these inflation figures.
Chancellor Rachel Reeves has expressed dissatisfaction with the current progress in managing inflation, hinting at potential relief measures in the upcoming November Budget, particularly concerning energy bills. Meanwhile, businesses remain cautious, voicing concerns that additional tax increases might reignite inflation. The Bank of England is expected to maintain a cautious stance on interest rate reductions until inflation appears more firmly controlled.
Source: https://www.bbc.com/news/articles/cvg4d13p33yo?at_medium=RSS&at_campaign=rss