Businesses Far More Worried About Underlying Inflation Than The Rising Cost Of Debt

Commenting on the news that CPI inflation rose from 3.1% to 4.2% in October, Kitty Ussher, Chief Economist at the Institute of Directors, said:

“While some of this increase is due to a higher household energy price cap and the phased ending of the hospitality VAT cut, these measures in themselves do not account for all of the rise in prices observed between September and October.

“At this point in time firms are far more worried about underlying inflation than the rising cost of debt.

“With interest rates at historic lows, we’re calling on the Bank of England to show it means business and get inflation expectations back in line with their mandate.”

Head of Economics at the BCC Suren Thiru, said:

“The latest data confirms that inflation is on a significant upward trajectory.

“October’s upturn was largely driven by rising household energy costs following the increase in Ofgem’s energy price cap, rising fuel prices and the partial reversal of the VAT reductions for hospitality and tourism which drove up restaurant and hotel prices.

“A substantial winter surge in inflation remains probable with the rising cost of imported raw materials and higher energy prices likely to lift inflation to around 5% next year.

“Inflation should trend back towards target over the medium term as supply chains adjust post-pandemic and demand weakens as fiscal policy tightens and economic conditions moderate.

“The Bank of England are facing a tricky trade-off between surging inflation and a stalling recovery. However, with the UK economy facing mounting headwinds, raising interest rates too early should be resisted to avoid damaging business and consumer confidence.”

Julian Jessop, economics fellow at free market think tank the Institute of Economic Affairs, said:

"The jump in UK inflation to 4.2 per cent in October was bigger than most had anticipated, including the Bank of England, and should seal the deal for an interest rate hike in December.

"The increase was led, as expected, by a 22.3 per cent surge in energy prices as the Ofgem cap on domestic fuel bills was lifted. However, the core measure (excluding food and energy) is also well above the Bank’s 2 per cent target, at 3.4 per cent.

"Inflation will continue to rise, due to a combination of unfavourable base effects and strong global cost pressures, probably peaking at around 5 per cent in the spring.

"The root cause of rising inflation is too much cheap money chasing too few goods and services, and it is too late to prevent prices from climbing further in the coming months.

"Market forces and price signals also need to be allowed to work. Any direct government intervention should therefore be limited to protecting the poorest households from a cost of living crisis.

"However, the Bank of England can at least help to ensure that a temporary increase in inflation does not become permanent, by ending its money printing and starting to return interest rates to more normal levels. This would send a clear message that the Monetary Policy Committee is serious about keeping inflation down over the medium term, which is, after all, it’s main job."

TUC General Secretary Frances O‘Grady said:

“With prices rising faster than pay, many families will struggle to keep up with basic living costs, let alone Christmas celebrations. Fuel and electricity costs are soaring, and the Chancellor’s cut to universal credit could not have come at a worse time.

“The government needs an urgent plan to get real wages rising. Trade unions need greater access rights to workplaces to negotiate improved pay. The Chancellor must fully fund real pay rises for public sector workers. And the minimum wage should go to £10 immediately.”