Rolling coverage of the latest economic and financial news
- CPI inflation rate jumped to 4.2% last month as costs of living squeeze intensifies
- Electricity costs surge 18.8% year/year; gas up over 28%, petrol prices at nine-year high
- Restaurants and hotels, education, furniture and household goods, and food and non-alcoholic beverages also added to inflation
- Levelling up? If anything, things are getting worse for the lowest paid in the UK
The rise in the VAT rate for hospitality, leisure and tourism businesses to 12.5% in October also pushed up the prices paid by consumers.
It replaced the reduced 5% rate introduced in July 2020 after the first pandemic lockdowns, and has pushed up services inflation.
We expect that most restaurants did not reduce prices when the VAT rate was cut from 20% in July 2020, so the reimposition of VAT (and it is due to rise to 20% at the end of March) has resulted in a step change upwards in prices.”
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.
“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.”
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