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UK’s Cost Of Living Fears Grow As Inflation Returns To 40-Year High

The UK’s cost of living is rising at its fastest rate in 40 years, official figures show.

Soaring food prices drove UK inflation back into double digits in September, returning to the 40-year high reported earlier this summer.

The rate of Consumer Price Index inflation in the UK rose to 10.1 per cent in the 12 months through to September, official figures showed on Wednesday.

It was above the expectations of economists, who had predicted a figure of 10 per cent, compared with 9.9 per cent in the previous month.

The rate returned to July’s recent historic high, the Office for National Statistics figures showed.

The CPI monthly rate was 0.5 per cent in September, compared with 0.3 per cent in the same month last year.

The figures leave inflation well above the Bank of England’s 2 per cent target, adding to pressure on policymakers to lift the key rate significantly next month.

Retail Price Index inflation (RPI) increased to 12.6 per cent, while CPI including housing costs (CPIH) returned to 8.8 per cent in September from 8.6 per cent in August, the ONS said.

The danger is that prices could accelerate again early next year after the government loosens its support for household energy bills.

The pound dropped after the report, falling as much as 0.3 per cent on the day to $1.1286.

The ONS said rising food prices was the greatest addition to the cost-of-living squeeze on households, while it had been partially offset by a drop in motor fuel costs.

ONS director of economic statistics Darren Morgan said the rise in the cost of living was the fastest in 40 years. Before July, the last time it had exceeded 10 per cent was in February 1982 when it hit 10.2 per cent.

“After last month’s small fall, headline inflation returned to its high seen earlier in the summer,” Mr Morgan said.

“The rise was driven by further increases across food, which saw its largest annual rise in over 40 years, while hotel prices also increased after falling this time last year.

“These rises were partially offset by continuing falls in the costs of petrol, with airline prices falling by more than usual for this time of year and second-hand car prices also rising less steeply than the large increases seen last year.

“While still at a historically high rate, the costs facing businesses are beginning to rise more slowly, with crude oil prices actually falling in September.”

In response to the figures, Chancellor of the Exchequer Jeremy Hunt said the government “will prioritise help for the most vulnerable while delivering wider economic stability”.

“I understand that families across the country are struggling with rising prices and higher energy bills,” said Mr Hunt.

“This government will prioritise help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone.”

Since former chancellor Kwasi Kwarteng‘s mini-budget on September 23, the UK’s economy has been in turmoil, with the pound crashing and markets volatile.

Last week, Prime Minister Liz Truss sacked Mr Kwarteng and replaced him with Mr Hunt, who proceeded to rip up her tax-cutting agenda.

Ms Truss is set to address MPs in parliament on Wednesday for the first time since abandoning her economic plan, as she seeks to reassert her waning authority.

The prime minister, who is battling to rescue her premiership after only six weeks in charge, is set to face hostile questions from Tory and opposition MPs in a House of Commons that is expected to be febrile.

Confederation of British Industry principal economist Martin Sartorius said the rising inflation figure underlined the need for the government to give more details on its revised energy support package.

“The prospect of household energy bills rising sharply again in April 2023 emphasises the need for government to set out the details of any future targeted support sooner rather than later, in addition to how the country will establish its longer-term energy security,” he said.

Jack Leslie, a senior economist at the Resolution Foundation think tank, which specialises in work on living standards, said family incomes would “continue to fall sharply”.

Alice Haine, a personal finance analyst at investment platform Bestinvest, said the slight increase “might seem modest, but consumers aren’t out of the woods yet as inflation is expected to increase again from here — further eroding purchasing power at a time when borrowing costs are also continuing to rise”.

Household finances are still being affected by the rising price of groceries, she said.

“The hope is that the cap on energy bills this winter will help to curb the alarming jumps in inflation that have become the norm in recent months and lead to a peak before the end of the year,” Ms Haine said.

September’s inflation reading will make important reading for the Treasury as it used to decide increases for a number of key policies.

For example, the CPI rate will be used as part of the Work and Pensions Secretary’s annual benefits uprating review.

If the government decides to uprate benefits by inflation, this is the percentage they will be increased by. The increase will come into effect from next April.

September’s inflation figure is also the one used by the department within the triple-lock pension commitment.

The triple-lock means pensions will rise by the highest of three figures: average earnings, CPI inflation based on September’s rate or 2.5 per cent.

With average earnings most recently hitting 5.4 per cent, it is widely expected that pensions would rise by the inflation rate in April next year.

However, on Tuesday, Downing Street indicated ministers could ditch their commitment to the triple lock as Mr Hunt looks for more cuts to fill the government’s financial black hole.

The inflation rate will also be used to decide the property tax increase facing high street businesses.

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