UK inflation hits 41-year high of 11.1% due to soaring energy costs

Figure up from last month's 10.1 per cent and higher than expected

The UK economy is in the eye of a storm. Bloomberg

Inflation in the UK has hit a 41-year high as soaring food, fuel and energy prices drove up the Consumer Price Index once again.

The annual rate rose to a higher-than-expected 11.1 per cent, up from 10.1 per cent last month, the Office for National Statistics said on Wednesday.

The increase was stronger than the Bank of England's 10.9 per cent forecast and the 10.7 per cent median predicted by economists.

Inflation would have reached 13.8 per cent had the government not introduced an energy price guarantee that limited the increase in electricity and natural gas prices, the ONS said.

Experts said the rise would heighten demand for the government to do more to ease the nation’s cost-of-living crisis when it reveals new tax and spending plans on Thursday.

Chancellor Jeremy Hunt said “tough but necessary” decisions were required to tackle rising prices.

“It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances,” he said.

“That requires some tough but necessary decisions on tax and spending to help balance the books.”

The BoE this month announced its biggest interest rate rise since 1989 to combat inflation and warned the UK economy may experience a record-long recession until mid-2024.

The bank said it was lifting borrowing costs by 0.75 percentage points to 3 per cent, the highest level since the 2008 global financial crisis, to cool UK inflation that it predicted would peak at almost 11 per cent — lower than it is now.

Experts said the latest rise in inflation added to the pressure on the BoE to raise interest rates again.

The ONS said gas prices had jumped nearly 130 per cent in the past year, while the price of electricity has risen by 66 per cent.

Families were also hit by rising food costs, which pushed up the cost of living to eye-watering levels.

The rise in inflation — the biggest since March to April — comes despite the government's support package, which has sought to limit Ofgem's energy price cap at about £2,500 a year.

Grant Fitzner, chief economist at the ONS, said the energy price cap could not stop rising gas and electricity costs, as well as the price of food, driving up inflation.

He added: “These were partially offset by motor fuels, where average petrol prices fell on the month, while the price for diesel rose taking the disparity in price between the two fuels to the highest on record.

“There was further evidence that costs facing businesses are rising more slowly, driven by crude oil and petroleum prices.”

The pound rose as much as 0.3 per cent to $1.1901 after the release.

Money markets add as much as 10 basis points to rate increase bets, pricing interest rates to peak around 4.65 per cent by August.

“It is still unclear if we are reaching peak inflation for the year but nevertheless this is a tough period for public markets,” said Andrew Aldridge, a partner at Deepbridge Capital.

Alice Haine, personal finance analyst at Bestinvest, the DIY investment platform and coaching service, said current levels of inflation were “difficult for consumers to digest when you consider all the other challenges hammering household finances at the moment — from rapidly rising interest rates to falling real incomes, a looming recession and the prospect of higher taxes in this week’s Autumn Statement”.

“Inflation has been on the rise since the second quarter of 2021 when pandemic-fuelled supply chain shortages converged with soaring consumer demand as economies reopened from lockdown.”

She said inflation was likely to ease going forward, with an expected raft of tax rises, interest rates at 3 per cent and climbing, and mortgage costs still high compared to the past decade.

Andrew Megson, chief executive of My Pension Expert, said research by the company showed that more than a quarter (26 per cent) of people in Britain aged 40 and above no longer had confidence in their pension due to such economic volatility.

“Something must be done to alleviate this crippling financial pressure,” he said.

“All eyes will be on the Chancellor tomorrow, with the hope that he can provide some much-needed reassurances to struggling pension planners. Finally, giving a clear answer regarding the future of the triple lock would be a step in the right direction. However, such action alone will not be enough.

“The government must provide long-term support to help Britons better understand their financial situation and make informed choices to protect their money.”