Inflation hits a 41-year high

Rishi Sunak said inflation was “the enemy that we need to face down” after it rose to a 41-year high of 11.1 per cent today.

ONS data showed that inflation – fuelled by rising energy and food prices – jumped from 10.1 per cent in September, surpassing the 10.7 per cent economists had expected.

The Bank of England is tipped to raise interest rates by a further 0.5 percentage points to 3.5 per cent when it meets in December.

Even though the Bank has lagged behind the Fed in raising rates aggressively, there had been hopes following lower than expected October inflation numbers in the US that UK inflation may also have peaked.

Instead, today’s figures also overshot the Bank of England’s prediction that inflation would rise to “just under 11 per cent”, stay above 10 per cent for several months, then fall back.

Could this 11.1 per cent be the true high-water mark?

James Smith, a developed markets economist at ING, believes it may well be: “The fact that the government is effectively fixing electricity/gas unit prices below wholesale costs until next April means this is probably as high as it will get,” he says. “Though admittedly we expect headline rates to stay in double-digits until at least February next year.”

The inflation figures have hung over a frantic day at Number 10 and 11 Downing Street, as Jeremy Hunt makes the final adjustments to his long-awaited Autumn Statement, due to be delivered tomorrow.

Briefings suggest that the package could include up to £25bn of extra taxes and £35bn of spending cuts. It’s going to be a bitter pill to swallow for millions of people, intensifying the squeeze on consumers and businesses from a cost-of-living crisis already in full swing.

The Statement is also expected to contain Hunt’s plan to tackle long-term sickness, after fresh data showed that Britain’s labour market is shrinking, with many people not going back to work post-pandemic. CEBR’s Douglas McWilliams predicted this all the way back in May 2020.

But can Hunt and Sunak rely on the support of their own MPs? Esther McVey, a Tory backbencher and former Cabinet minister, warned at PMQs this afternoon that she might not support tax rises unless the HS2 rail project is scrapped.

As a good chunk of the rumoured tax rises will come from keeping tax brackets the same and letting inflation drag households and firms into higher ones, McVey may not get a chance to vote against them.

But her intervention hints at disquiet bubbling below the surface of Tory ranks at a fiscal plan that could well define the trajectory of the country – and the Tory party – for years to come.  

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