UK inflation has jumped to the highest level in a decade, hitting a rate more than double the government’s target amid a severe cost of living squeeze from soaring household energy bills.
The Office for National Statistics said the consumer prices index measure of annual inflation rose to 4.2% in October, up from 3.1% in September – the highest rate since November 2011.
Driven by a dramatic jump in household gas and electricity prices, the figure was higher than forecast by City economists, with the annual inflation rate more than double the 2% target set by the government for the Bank of England.
The increase will put pressure on the Bank to raise interest rates from as early as next month amid growing concern over the pressure on households.
It comes after the energy regulator, Ofgem, lifted its cap on household bills after wholesale gas prices soared to record levels as economies around the world emerged from lockdown and supplies of Russian gas to Europe failed to meet demand.
Reflecting a squeeze on household spending power, the jump in the annual inflation rate was also driven by higher prices in restaurants and hotels after a partial removal of a VAT cut for the hospitality sector, as well as soaring prices for secondhand cars.
Much of the increase reflected depressed price levels a year ago as the coronavirus pandemic dragged down economic activity around the world. However, consumer prices have since risen substantially, while costs of goods produced by factories and the price of raw materials have hit the highest rates for at least 10 years.
The Bank of England held back from raising interest rates earlier this month despite financial market expectations that it would increase borrowing costs in response to rising inflationary pressures across the economy.
Threadneedle Street has warned inflation will peak at close to 5% next year – a temporary increase before gradually fading back towards its 2% target as disruption caused by the pandemic gradually recedes.
The chancellor, Rishi Sunak, said many countries were experiencing higher inflation after the easing of lockdown restrictions and that the government was taking action to help consumers with more than £4.2bn of help.
“We’re helping people get into work, progress and keep more of what they earn, through our plan for jobs and by effectively cutting taxes for workers receiving universal credit,” he said.
However, the government has faced intense criticism for scrapping the £20-a-week uplift in universal credit in the biggest ever overnight benefit cut, as well as planning manifesto-busting tax increases and suspending the pensions triple lock.
Jack Leslie, a senior economist at the Resolution Foundation, said the rate of inflation had increased at its fastest rate over the past year since at least 1989 – a shift that meant real wages were already falling and were likely to continue to do so for the next six months.
“We could be set for a sustained period of shrinking pay packets,” he said.