UK inflation has unexpectedly remained at 6.7 per cent in September, significantly above the Bank of England’s target of 2 per cent. This persistent high inflation rate has put a strain on households and increased the cost of goods and services. Rising oil prices have contributed to the ongoing price growth, leading to higher petrol costs. Moreover, the job market has weakened, resulting in an increase in unemployment.
On a positive note, average wage growth has exceeded inflation for the first time in two years, with a growth rate of 7.8 per cent between June and August. However, despite this improvement, the Bank of England governor, Andrew Bailey, describes the situation as “tight” and has chosen to maintain interest rates at 5.25 per cent, with no plans for a rate cut until next spring.
Chief economist of the Bank of England, Huw Pill, emphasizes the need for continued efforts to reach the 2 per cent inflation target sustainably. Chancellor Jeremy Hunt also expresses pessimism about the economy in light of fresh international conflict, and economist Paul Johnson warns of a moderate recession in 2024 without prospects for tax cuts or increased public spending.
For consumers, the frustrating picture is mitigated by the availability of financial support for low-income households. Despite the expiration of the Energy Bill Support Scheme, the government has introduced a cost of living support program. Eligible means-tested benefits claimants will receive further support payments worth up to £1,350 in total this year. Additionally, separate payments for people with disabilities and pensioners are scheduled.
In terms of energy prices, the warm October weather has delayed the need for central heating, providing some relief for consumers who faced high heating bills last winter. The government’s Energy Price Guarantee, which ensured households paid no more than £2,500, is no longer relevant as the Energy Price Cap has fallen below this threshold. Ofgem has announced that the Energy Price Cap for the final quarter of the year will be £1,923, reflecting the recent drops in wholesale energy prices.
Looking ahead, analysts predict a further slight drop in the energy price cap in the coming quarters. However, despite these decreases, the average annual energy bill remains significantly higher than pre-pandemic levels.
Frequently Asked Questions (FAQs)
1. Why is UK inflation staying above the Bank of England’s target?
UK inflation remains above the Bank of England’s target due to rising oil prices and ongoing price growth in various sectors. Additionally, a weakening job market has also contributed to the persistence of high inflation.
2. How are households affected by high inflation?
High inflation puts pressure on households as it leads to increased costs of goods and services. It can erode purchasing power and make it more challenging for individuals to manage their expenses.
3. What support is available for low-income households?
The government offers financial support through the cost of living support program. Eligible means-tested benefits claimants, including those on universal credit, pension credit, and tax credits, will receive support payments. Separate payments are also provided for people with disabilities and pensioners.
4. Have energy prices stabilized?
Energy prices have seen some stabilization, with the Energy Price Cap falling below £2,500. Wholesale energy prices have dropped, leading to a decrease in the cap. However, energy bills remain significantly higher than pre-pandemic levels.
5. What is the forecast for future energy prices?
Analysts predict a slight drop in the energy price cap in the coming quarters. However, the average annual energy bill is expected to remain higher than pre-pandemic levels in the foreseeable future.