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Higher energy prices have contributed to a sixth-month high in UK inflation, according to official figures. The year-on-year rate hit 2.3% in October, up from 1.7% in September, due mainly to a £149 increase in typical annual gas and electricity bills. However prices are still increasing at a slower rate than in recent years. Despite inflation being an indicator of interest rates it is not expected that the Bank of England will cut rates further until 2025, even though a rise in inflation would lead to higher costs for loans, mortgages and credit cards, and a higher cost of living for households.
Grant Fitzner, chief economist for the Office for National Statistics, stated that the increase is due to a rise in energy costs, which has been offset by declines in prices for live music and theatre tickets. The cost of materials for businesses continues to fall, primarily due to reduced crude oil prices. With the drop in temperature and snow predicted, energy costs will once again become a primary concern for many households. Prices are currently lower than last winter, however, they have increased due to the cutting back of support given to bills in previous years. The winter fuel payments, which have been means-tested, are no longer available to 10m pensioners in England and Wales.
In 27m homes across Britain, people are paying a price cap of £1,717 for gas and electricity, set by the regulator Ofgem, for a typical amount of each. These caps are not applicable in Northern Ireland. Darren Jones, chief secretary to the Treasury, acknowledged that the government knows ‘families across Britain are still struggling with the cost of living’ and suggested that more action is needed to address the situation. Head directors in the investment business suggest policymakers may argue that inflation at 2.3% is ‘relatively low’, however, the cumulative price increases of the last few years will be felt by householders.
The inflation rate for services, such as haircuts and cinema tickets, increased to 5%, while the rate of inflation for food remained stable. Alcohol and tobacco prices rose sharply. As the Bank of England has already warned about slower rate cuts due to the uncertain outlook for consumer prices following the Labour Budget, analysts suggest the forthcoming rate changes may lead to hotter than expected inflation. Governor Andrew Bailey predicts interest rates will continue to gradually decrease but warns that too quick or too much a cut would not be wise. Mel Stride, the shadow chancellor, queried the impact of Chancellor Rachel Reeves’ inaugural budget on prices and the economy in general
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