Inflation is red hot in the United Kingdom (UK), as evidenced by the latest data released by the Office for National Statistics (ONS) for September. According to the figures released, inflation reached a 40-year high of 10.1%, due to the cumulative surge in the cost of consumer goods.
The British government is working to reduce the burden of the high cost of living on its citizens and residents, even though the global economy is currently working against its plans. September’s inflation figure was slightly higher than the 10 percent forecast by analysts polled by Reuters.
The figures are now a cause for concern as industry players are convinced that the Bank of England’s (BoE) monetary policies are not bearing much fruit in reducing soaring food and transport prices. Both segments were sources of concern in September, with food prices up 14.6 percent year-over-year, transportation prices up 10.9 percent from a year ago, and furniture and household goods prices up 10.8 percent.
The underlying turbulence in the economy is also having a significant impact on the valuation of the British pound, which continued to fall to $1.1289 from $1.1330. In an attempt to ameliorate the latest trigger that sent the market tumbling, Prime Minister Liz Truss fired Kwasi Kwarteng and replaced him with Jeremy Hunt, both of whom attempted to backtrack on the tax cuts introduced on September 23.
The rationale for the tax cuts was to provide relief to individuals and businesses, but the market realized that the government did not have a viable plan to address the deficit that would result from the policy.
Mr. Hunt’s goal is now multifaceted, and he says it is to provide support to the UK’s most vulnerable residents while “providing broader economic stability and promoting long-term growth that will help everyone.“
Inflation in the U.K. could cause a lackluster Christmas
With inflation rising in the U.K., many consumers are already planning for a conservative holiday season, according to a survey by McKinsey & Company. With feelings about food prices described as “pessimistic“, as many as 84% confirmed they spent the same or more on food products as they did three months ago.
“The level of inflation is already causing consumers to look at Christmas differently, with 58% planning to cut back on Christmas spending and 8% not planning to shop” said Samantha Phillips, a partner at McKinsey, in a research note.
It’s shaping up to be a very cold winter as the energy crisis, fueled by the ongoing war between Russia and Ukraine, has yet to abate. In all of this, there is little indication that the BoE will change course on its approach to interest rates.
″[La Banque d’Angleterre] may be satisfied with the actions taken at Westminster for now, but in the coming weeks we’ll see what she really does with the government’s fiscal policy when she makes her next move at the November MPC meeting” said Marcus Brookes, chief investment officer at Quilter Investors.