18th October 2022
Data released last month by the Office for National Statistics (ONS) showed that the headline rate of inflation rose to 10.1% in September after dipping to 9.9% in August. This was slightly above analysts’ expectations and took consumer price inflation back to a 40-year high previously hit in July.
The food and non-alcoholic drinks sector was the biggest upward contributor to September’s rise, with prices in this category recording their biggest jump since April 1980. ONS said the price of most key items in an average household’s food basket rose, including fish, sugar, fruit and rice, as the war in Ukraine and recent weakness in the pound made both food products and ingredients more expensive.
This further jump in inflation has placed additional pressure on the BoE to raise interest rates when its next MPC meeting concludes on 3 November. Speaking at a G30 event in Washington in mid-October, Bank Governor Andrew Bailey acknowledged rates may need to rise by more than the BoE had previously envisaged. The Governor said, “We will not hesitate to raise interest rates to meet the inflation target. And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
While the Chancellor’s decision to delay his fiscal statement until after the Bank’s November meeting will make policymakers’ deliberations more difficult, analysts still expect them to take decisive action. Indeed, over half of respondents in a recent Reuters poll of economists expect rates to rise by 0.75% in November, with most of the others predicting a 1% increase.