UK Inflation Drops to 10.7%, Not Enough to Curb the Rising Cost of Living

UK Inflation Drops to 10.7%, Not Enough to Curb the Rising Cost of Living

Although inflation seems to have “passed the peak”, the rising cost of food, fuel, and housing is massively affecting low-income Britons who are finding it harder to make ends meet. Economists are predicting the cost of living crisis to deepen going into next year.

As a sign of relief to Britons, the nation’s inflation has fallen slightly below the 11.1% high of last month to reach 10.7%. According to the Office of National Statistics (ONS), a fall in the price of fuel was the main reason for the drop. The rates came at less than expected by economists who were anticipating the Consumer Price Index (CPI) inflation to drop to only 10.9%.

Even though the rate is below that of November, it is still really close to the 40-year high which was caused by soaring cost of living driven by the hike in prices of food and energy. British think tank Resolution Foundation pointed out that households are still feeling the pain of increased living costs which is affecting poorer households at rates higher than the current inflation.

Jack Leslie, a senior economist at the foundation noted that inflation passing its peak is good news for the Bank of England and the Treasury who are trying hard to reduce the rates by raising interest rates and public debt. However, the economist added that their policies have affected the country’s poorest families, who are facing an inflation rate of over 12%. With prices of daily items still outperforming pay rises, low-income households are getting poorer month-on-month as the cost of living crisis will continue to deepen into next year.

Poorer families are affected by inflation more than rich households because they spend a greater amount of their income on energy and food, which have been rising at the fastest rate.
While food prices continued to surge at 16.4% on an annual basis, fuel, tobacco and clothing are all priced lower than this time last year. Price of fuel rose by 17.2% in the year to November, compared to a 22.2% rise in the year to October according to ONS.

UK Inflation Drops to 10.7%, Not Enough to Curb the Rising Cost of Living

“Prices are still rising, but by less than this time last year, with the most notable example of this being motor fuels. Tobacco and clothing prices also rose, but again by less than we saw this time last year,” said Grant Fitzner, chief economist at ONS.

Inflation rate is at its highest in over thirty years in the hospitality sector, and is expected to get worse this festive season due to the ongoing rail workers strike. The busiest time of the year for hotels and restaurants will be crippled by the strikes that are going to affect the commute of Britons. The rising price of alcoholic drinks is forcing restaurants, cafes, hotels and pubs across the country to demand higher rates from customers.

November also saw a massive spike in the number of companies that have become insolvent across England and Wales. Government data showed 2,039 companies across various sectors filing for bankruptcy, which is 21% higher than last year and more than 35% when compared to the same month in 2019.

“We are already seeing an uptick in the number of companies facing financial pressure, as the obvious impacts of inflation, interest rates, input costs, plus Brexit continue to bite. It is also much harder for firms to build reliable forecasts at this stage, given the current economic and macro uncertainties, this in turn makes raising additional liquidity or capital more challenging,” said Andy Davis, strategic advice director at restructuring firm Azets.

Land Registry data from the ONS showed that the average UK house price was £296,422 in October, up from £295,528 in September. The yearly average price for a home in Britain is 12.6% higher compared to this time last year. Housing inflation currently stands at 17.3%, with an increase of 13.2% in England (£316,000), 11.8% in Wales (£224,000), 8.5% in Scotland (£195,000) and 10.7% in Northern Ireland (£176,000).

In its battle against inflation, economists are expecting the Bank of England (BoE) to hike interest rates by 50 basis points to hit 3.5%. Last month, the central bank raised interest on the pound by 75 basis points to reach 3% which was the largest increase on borrowing rates in over 30 years.

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