UK inflation held steady at 3.8% in September, keeping the same inflation rate since August. After all, stability has sparked a lively debate between Bank of England policymakers and members of the Johnson administration. For one, they’re searching for strategies to address sustained inflationary pressures, particularly in the services sector. As inflation remains a pressing issue for many households, particularly those with lower incomes, a cabinet meeting chaired by Rachel Reeves aims to explore actionable solutions.
Even with the inflation rate stagnant, many economists remain hopeful for a continued inflation decrease in the months to come. WPI Strategy’s Martin Beck as a consultancy noticed that a November interest rate cut does not appear possible. He cautioned that market expectations were likely to prove too speedy for the Bank of England’s intended path towards rate rises.
We are well aware that food prices have been a crushing burden for consumers lately. So it’s perhaps not surprising that groceries were up 4.5% from a year ago. Services inflation is extremely elevated at 4.7%, historically one of the largest parts of the inflation basket. This ongoing increase in core expenses hits low-income families the hardest.
Rebecca Florisson, a principal analyst at the Work Foundation at Lancaster University, offered her experiences about increasing expenses. She emphasized the impact this is having on marginalized communities. She highlighted that the situation presents “particularly bad news for low-income households,” where financial strain is exacerbated by wage stagnation.
We hope Rachel Reeves will bring her new cabinet colleagues together to start addressing what lies ahead. They will learn how to assess various strategies to mitigate inflationary effects. Economists assert that only 42% of low-paid workers reported that their wages keep pace with rising costs, contrasting sharply with 73% of higher-paid workers who feel their earnings are sufficient.
Adam Deasy, senior economist at PWC, highlighted the Bank of England’s tendency to be careful about calling interest rate cuts. He remarked that they “perhaps want clearer signs that this is indeed the peak before moving further on rate cuts.” This mood is indicative of a larger play as officials make their way through hazy economic waters.
According to the most recent official numbers, inflation has settled down and isn’t causing problems. Earlier tax increases and regulated price hikes will soon fall out of the year-on-year calculation, likely leading to a fall of CPI inflation. Core PCE inflation is now expected by projections to decline toward the 2% objective over the first half of next year.
In fact, many economists are predicting a recession will cause inflation to decrease. This has led to an increasingly widespread perception that the worst is over for the UK economy. Analysts and policymakers are fixated on the possibilities for interest rate increases. They are most focused on what the changes will look like and when they will happen.