October saw the UK experience a drop in inflation not seen in two years. The primary cause for this sharp decline is contributed to lower energy prices. October’s inflation reached 4.6% YoY, a decrease from its previous rate of 6.7%. In meeting the government’s target to halve inflation by the end of the year, it is notable it was made likely by the decrease in energy price caps set by the government, along with the Bank of England’s action to increase interest rates.
Rates have now hit a fifteen-year high at 5.25%, an action carried out by the Bank of England to counteract the rise in prices evident within the UK economy. This increase has left those with mortgages with higher costs but led to higher savings rates.
Although it appears that the cost of living has diminished, energy bills will not reflect this drop in prices, only appearing lower than last year due to a lack of government assistance. This issue will persevere and lead to more people struggling with energy expenses in the coming winter months. It is paramount to comprehend that while inflation has decreased, most services, and goods remain at their current prices and are not cheaper to purchase; rather the rate of their increase is lower.
Despite this news, Resolution Foundation research director James Smith acknowledged “the cost-of-living crisis is far from over.” While there were increases in food prices and energy bills last year, average earnings rose only by 14% in comparison to the rise of 49% within energy prices, a gap that has further posed a threat to those with lower and middle incomes.
Prime Minister Rishi Sunak identified the reduction of inflation as his “top priority” and noted how such a decrease could ease the cost of living and provide people with greater financial security. However, Labour’s shadow chancellor Rachel Reeves advised Conservative ministers against congratulating themselves on momentary successes. Nonetheless, the UK is still some way off from meeting the Bank of England’s 2% inflation target. Next week’s unveiling of the energy price cap for the coming year could potentially result in energy prices increasing again.
It is also noteworthy that while inflation has decreased within the UK economy, this remains higher than that of other countries such as France, Germany, and the US. The government has demonstrated its support for the Bank of England’s actions to lower inflation rates via the implementation of interest rates. The reduction in inflation rates is a positive impact; however, it remains crucial to remember and address the societal issues that the cost-of-living crisis has further exacerbated
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