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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Charities urge government not to ‘fiddle’ benefits increase after inflation hits two-year low – as it happened

Inflation United Kingdom United States Sanjay Raja Deutsche Bank The Bank of England
The drop in Britain’s energy price cap helped household finances last month
The drop in Britain’s energy price cap helped household finances last month Photograph: Tolga Akmen/EPA

Closing post

Time to wrap up, after a busy day which saw the UK inflation rate drop by the most since 1992, and a chorus of warnings that the government must not cherry-pick today’s CPI reading to set benefit increases next year.

Here are today’s main stories, first on inflation:

The latest on our Cyprus Confidential investigation:

And in other news:

This morning’s drop in the UK’s inflation rate means savers now have a choice of cash savings accounts that beat inflation, for the first time in more than two years.

The drop in the Consumer Price Index (CPI) measure of inflation to 4.6% in October means some standard cash savings accounts now beat inflation, financial information website Moneyfactscompare.co.uk said

It counted 56 easy access accounts, 86 notice accounts, 46 variable-rate Isas, 215 fixed-rate Isas and 489 fixed-rate bonds.

Highlighting some deals, based on someone having £10,000 to put away, Moneyfacts noted a 5.20% easy access account from Ulster Bank, a notice account from Shawbrook Bank paying 5.56%, and a one-year fixed-rate bond from Metro Bank at 5.91%.

Looking at cash Isas, Virgin Money is offering a one-year fixed-rate at 5.85%.

Over in the UK parliament, transport Secretary Mark Harper has dampened hopes of an imminent breakthrough in the long-running pay dispute involving train drivers.

He told MPs he has not heard “any such mood music” suggesting union Aslef might change its position.

In relation to the dispute with Aslef over pay and conditions, Mr Harper told the Commons’ Transport Select Committee:

“There is, most people think, a perfectly fair and reasonable offer on the table and I genuinely don’t understand why Aslef won’t put it to their members.”

It would take the average pay of a train driver from £60,000 for a 35-hour four-day week to just under £65,000 for the same working week.

“Now I think most people will think that’s quite reasonable.

“But the most important thing is, it’s on the table, and I hope Aslef put it to their members.”

Last week it emerged that the RMT union had drawn up a “memorandum of understanding” (MOU) with employers to ballot members at train operating companies over a deal that would backdate the 2022 pay rise and extend guarantees over jobs until the end of 2024.

Royal Statistical Society warns government against cherry-picking inflation data

The Royal Statistical Society has warned that the government risks being seen as “cherry-picking the bits of data that suit them”, if they use today’s fall in inflation to cut the increase in workplace benefits next year.

The Society says it would be “concerning” if the Treasury used October’s inflation rate (of 4.6%) to set benefit increases, rather than sticking with September (6.7%) as usual.

Updated

US retail sales fall

Eek. US retail sales have dropped for the first time since March.

Retail sales (which are adjusted for seasonality but not inflation), fell 0.1% in October from the prior month, the Commerce Department reports.

That may indicate that consumers are cutting back as high interest rate hit the economy, just as we approach the crucial festive season.

That is better than the 0.3% fall which economists expected, though.

And September’s retail sales figures have been revised up to show a 0.9% rise, not the 0.7% first reported.

Updated

Just in: Factory gate prices have cooled in the US, following a similar slowdown in the UK this morning.

The US Producer Prices Index (PPI) for final demand fell by 0.5% in October, which is the biggest drop since factories were slashing prices in April 2020 early in the Covid-19 pandemic.

In October, the index for final demand goods fell 1.4%, while prices for final demand services were unchanged.

On an annual basis, PPI rose by 1.3%, down from 2.2% in the year to September. That’s another sign that inflationary pressures are easing,

In the UK this morning, the Office for National Statistics reported that producer output (factory gate) prices fell by 0.6% in the year to October, but were up by 0.1% month-on-month.

Fuel retailers face fines if they fail to be more transparent on pricing, Energy Secretary Claire Coutinho has announced.

The Department for Energy Security and Net Zero (DESNZ) said it will grant new powers to the Competition and Markets Authority (CMA) to monitor pump prices and report “any sign of malpractice to the Government”.

The move is aimed at improving competition in the market.

Fuel retailers will be required to “come clean on how much they are charging customers on their forecourts versus their profits”, the DESNZ said.

Those that fail to comply could face a fixed fine from the CMA of up to 1% of their worldwide turnover, or an ongoing fine of up to 5% of daily turnover.

A CMA investigation this summer found that some supermarket fuel retailers failed to pass on reductions in wholesale costs last year, charging drivers 6p more per litre for fuel.

This amounted to £900 million in extra costs in 2022 alone.

Coutinho said:

“At a time when many were struggling with increased living costs, we saw shocking behaviour from some fuel retailers who failed to pass on savings at the pump.

“Now we are cracking down on any petrol station bosses found to be unfairly hiking up their prices.

“That’s why we’re giving the CMA new powers to bring fairness back to the forecourts and make sure UK drivers get a competitive fuel price.”

The Australian owner of the failed car battery firm Britishvolt is reportedly facing legal action from a former employee over unpaid wages, in a move that could result in the company being wound up.

Recharge Industries, which bought the business and assets of Britishvolt after it collapsed into administration this year, has been served with a statutory demand to pay the outstanding wages, according to the Financial Times.

The company has 21 days to pay the sum owed or the former employee has the right to take further legal action and pursue bankruptcy proceedings against Recharge Industries, the FT reported.

Average fixed-term mortgage rate have dipped a little today, as lenders continue to offer better deals.

Data provider Moneyfacts reports:

  • The average 2-year fixed residential mortgage rate today is 6.19%. This is down from an average rate of 6.21% on the previous working day.

  • The average 5-year fixed residential mortgage rate today is 5.79%. This is down from an average rate of 5.80% on the previous working day.

Here’s a chart showing how the UK’s inflation shock has receded…. but prices are still rising more than twice as fast as the official target.

The Women’s Budget Group has warned that single mothers would lose £218 per year if Jeremy Hunt decides to increase benefits in line with October’s inflation figure of 4.6% (as he is rumoured to be considering), rather than September’s of 6.7%.

They say:

  • Any freeze in benefits or an increase below September CPI inflation would mean a cut in real terms, particularly affecting women, single mothers, disabled people, large families, and households on low incomes.

  • If benefits are increased in line with October’s CPI inflation rate of 4.6% instead of September’s 6.7%, lone mother households will lose £218 a year.

  • If benefits are frozen and not increased in line with September’s CPI inflation in 2024, lone mother households will lose £788 per year.

A chart showing the impact of benefit increases by inflation

Dr Mary-Ann Stephenson, director of WBG, adds:

“To preserve the real value of benefits, the Government should at the very least increase benefits by 6.7%, in line with September 2023 inflation.

Families are living with the inflationary impacts on costs since this cost of living crisis started and are now going into what is likely to be an even tougher winter than last year. The debt support charity StepChange reported that women now make up 65% of their new clients, and they saw a 38% increase in users between 2022 and 2023.”

Some reaction to the issue of who gets the credit for falling inflation….

Updated

Over in parliament, Rishi Sunak has told MPs that the government have delivered on his “number one priority” to halve inflation this year.

The PM adds:

There remains more to do, but this is a strong step forward.

Our Politics Live blog has all the action from Prime Minister’s Questions:

Back in the UK, the route to interest rates being cut next spring is now “very clear to see”, says economist Samuel Tombs of Pantheon, after today’s inflation report.

EC cuts eurozone growth forecast

Storm clouds are gathering over Europe’s economy, with the European Commission cutting its forecasts for eurozone growth this year.

In its latest forecasts, the EC lowered its forecast for growth in the eurozone in 2023 to 0.6%, down from the 0.8% expected in September.

The EC warned that the European economy has lost momentum this year, amid the cost of living squeeze, weak external demand and rising interest rates.

It says:

Following a robust expansion throughout most of 2022, real GDP contracted towards year-end and barely grew in the first three quarters of 2023.

Still high, though declining, inflation, and tightening monetary policy took a heavier toll than previously expected, alongside weak external demand.

The latest business indicators and survey data for October point to subdued economic activity also in the fourth quarter of this year, amid increased uncertainty.

Overall, the Autumn Forecast projects GDP growth in 2023 at 0.6% in both the EU and the euro area, 0.2 percentage points below the Commission’s summer forecast.

Growth across the European Union for 2024 has been downgraded too, to 1.3% from 1.4% forecast in the summer.

The EC also expects Germany’s economy will shrink by 0.3% this year, before returning to growth in 2024.

And inflation in the eurozone is expected to keep falling, having peaked at 10.6% a year ago.

Headline inflation in the euro area is projected to fall from 5.6% in 2023 to 3.2% in 2024 and 2.2% in 2025.

The Joseph Rowntree Foundation have also warned that prices are still sharply higher than in April 2021:

Charities urge Hunt not to ‘fiddle figures’ to uprate benefits

Campaigners have warned the Government it would be “indefensible” to use today’s lower inflation figures to uprate benefits next spring.

As flagged earlier (see post), the Treasury is rumoured to be considering using October’s CPI increase of 4.6% as the benchmark to raise working age benefits in April 2024, rather than September’s higher inflation reading of 6.7%.

That could cut £2bn off the UK’s benefits bill, according to Bloomberg, freeing up resources for potential tax cuts before the next election.

Charities Action for Children and the Joseph Rowntree Foundation (JRF) have both warned against using today’s inflation figure, and say the Treasury should stick with using September’s CPI.

JRF chief analyst, Peter Matejic, said many families “live in a world where their income, in many cases, simply doesn’t cover costs, while the Government talks about cutting their support further”.

Matejic added:

“It’s indefensible that the Government is reportedly considering cutting the benefits of struggling families worried for their future, with news stories suggesting it plans to use today’s figures, instead of last month’s, to fiddle the figures and hide a big cut.

“In the upcoming autumn statement benefits must be increased in line with inflation and Local Housing Allowance (LHA) must be unfrozen to support private renters with their housing costs.

“The Chancellor should also take steps to ensure that Universal Credit, at a minimum, always enables people to afford the essentials.”

Action for Children’s chief executive, Paul Carberry, warned that the cost of living crisis “is getting worse for many of the families we see every day”, even though inflation has slowed.

Carberry added:

“With winter approaching, the continued financial pressures on low-income parents will only get worse, meaning yet more children going cold and hungry.

“The Chancellor must use the autumn statement to protect families with children from these intense and ongoing pressures on household finances. At the very least, he must raise benefits by inflation in the usual way using the September figure and reform Cost of Living Payments to account for family size.”

Treasury minister Gareth Davies has been quizzed about this issue this morning.

Davies told ITV’s Good Morning Britain:

“I am not going to speculate what may or may not be in the autumn statement.

“But I would point out that we did uprate benefits by quite some considerable margin earlier this year. But it’s not appropriate for me to comment ahead of the autumn statement.

Updated

Here’s Newsnight’s Ben Chu on this morning’s inflation report:

Pub chain Fullers expecting strong Christmas

The Hatter pub and hotel, operated by Fuller’s, in London, last year.
The Hatter pub and hotel, operated by Fuller’s, in London, last year. Photograph: Daniel Leal/AFP/Getty Images

Pub chain Fuller, Smith & Turner says it’s looking forward to a “strong Christmas”, after reporting a jump in sales and profits.

Fullers has reported that like for like sales in the last 32 weeks are up 11.7%, and that bookings for Christmas are 11% higher than a year ago.

Its pretax profits rose to £14.9m in the six months to the end of September, up from £10.7m a year ago. Food sales grew 15.5%, while drink sales are up 10.9%.

Shares in Fullers are up 7.3%.

Chief executive Simon Emeny told shareholders:

“We have had a strong start to the year - delivering excellent financial results and building a superb platform for future growth. While there are still a number of macro-economic elements to navigate, certain external factors are moving in our favour with office workers continuing to return to their desks and the City becoming a seven day operation with increased leisure spend at the weekend.

“There has been a welcome return of major events. Customers are increasingly seeking premium experiences when they are spending their money, and we have the benefit of the lucrative international tourist trade to come with inbound tourism still below pre-covid levels.

Updated

In the energy sector, supplier SSE has announced it will grow its investment in clean energy to over £20bn.

The move comes as SSE reports better than expected profits for the first half of the financial year.

My colleague Jillian Ambrose explains:

The FTSE 100 utility told investors it will add an extra £2.5bn to its spending plan for the five years to the 2023-2024 financial year, most of which will be used to invest in renewable energy and upgrading the UK’s energy grids.

SSE’s chief executive, Alistair Phillips-Davies, said the company was prepared to accelerate its green ambitions because it has increased confidence in its future earnings.

The Perth-based company reported pre-tax profits of £565.2m for the first half of the year, up by 1% from the same months last year. SSE set out plans earlier this year to invest £40bn in clean energy over the next 10 years after almost doubling its full-year annual profits compared with the year before.

Full story: UK inflation drops sharply to 4.6% as energy prices fall

If you’re just tuning in….the UK’s annual inflation rate has fallen sharply to 4.6% in October on the back of cheaper gas and electricity in the biggest drop for more than three decades.

Marking the steepest single month decline in the consumer prices index (CPI) since 1992, the fall from 6.7% in September also beat the 4.8% figure predicted by a poll of economists for Reuters.

The decline does not mean prices are going down, only that they are rising less rapidly. Nevertheless, it is expected to ease fears that the Bank of England will increase interest rates again this year, despite being more than twice its 2% target.

It also means Rishi Sunak has achieved his target set in January of halving inflation by the end of the year from the 10.7% average in the last quarter of 2022. The prime minister said:

“In January I made halving inflation this year my top priority … Today, we have delivered on that pledge.”

More here.

House prices down in September, first fall since 2012

Newsflash: UK house prices dipped slightly in September, year-on-year, for the first time in over a decade.

The ONS reports that the average UK house price dropped 0.1% in the 12 months to September, to £291,385.

That’s down from £292,882 in August, and the first annual drop in house prices on the ONS’s data since April 2012.

A chart showing UK house prices
A chart showing UK house prices Photograph: ONS

The ONS’s latest house price report shows:

  • Average house prices over the 12 months to September 2023 decreased in England to £310,000 (negative 0.5%), decreased in Wales to £215,000 (negative 2.7%), but increased in Scotland to £195,000 (2.5%).

  • Average house prices increased by 2.1% to £180,000 in the year to Quarter 3 (July to Sept) 2023 in Northern Ireland.

  • The North East saw the highest annual percentage change of all English regions in the 12 months to September 2023 (1.6%), while the South West saw the lowest (negative 1.6%).

This 0.1% drop is a significantly smaller fall than UK mortgage lenders have reported.

Halifax said prices fell by 4.7% in the year to September, while Nationwide reported a fall of 5.3%.

However, the ONS’s data also includes cash buyers, rather than just those taking out a mortgage.

Updated

Rents soar as tenants feel squeeze

Newsflash: UK rents have jumped again, as tenants continue to be squeezed.

The private rental prices paid by tenants in the UK rose by 6.1% in the 12 months to October, new data just released by the Office for National Statistics shows.

That’s up from 5.7% in the 12 months to September 2023, and the highest rate since the ONS started calculating this data in January 2016.

A chart showing rising UK rents

The ONS adds:

  • Annual private rental prices increased by 6.0% in England, 6.9% in Wales, and 6.2% in Scotland in the 12 months to October 2023.

  • Within England, London had the highest annual percentage change in private rental prices in the 12 months to October 2023 at 6.8%, while the North East saw the lowest at 4.7%.

  • London’s annual percentage change in private rental prices was at its highest annual rate since the London data series began in January 2006.

Updated

Philip Shaw, analyst at Investec, points out that the Bank of England, not the government, is charged with controlling inflation.

Shaw says:

Overall today’s inflation numbers reinforce our view that interest rates have peaked. It is true this side of the Channel too that, as senior ECB officials have reminded us recently, ‘the last mile is the hardest’ in getting inflation back to the 2% target on a sustainable basis.

Even so, with the economy in our view heading towards a mild recession and what at least seems to be a loosening in labour market tightness, we continue to expect the first rate cut in Q2 next year.

Today’s figures also mean that PM Rishi Sunak has effectively met his pledge to halve inflation, made at the start of the year. We should add though that, of course, controlling inflation is the domain of the Bank of England, not 10 Downing Street.

UK interest rate cuts expected by May 2024 after inflation falls

Today’s inflation report bolsters expectations that the Bank of England will start cutting interest rates in May, say Morgan Stanley.

Bruna Skarica, UK economist at Morgan Stanley, told clients:

As we had expected, October brought another leg lower in core goods inflation, as used cars prices collapsed. But services inflation – and all the core metrics we track – were soft as well. The economy is weak, and firms’ pricing is waning.

On top of all this came sizeable base effects from energy. The UK no longer looks like such a major outlier when it comes to inflation. We see the print as supportive of our call of BoE cuts next year, from May.

Morgan Stanley predicted a May rate cut earlier this week. And more investors now agree, with the money markets now pricing in a rate cut, from 5.25% to 5%, next spring.

Market reaction: Shares surge, but pound drops

Britain’s stock market is rallying this morning, as traders welcome signs that the inflation shock is easing on both sides of the Atlantic.

The FTSE 100 index has gained 85 points, or 1.1%, to a one-month high of 7,525 points.

That follows strong gains on Wall Street last night, where investors cheered the drop in US inflation to just 3.2% last month.

That weakened the dollar, sending the pound surging yesterday by over two cents to $1.25, a two-month high.

Sterling has weakened this morning, though, it’s down a third of a cent at $1.246. That shows that traders are less concerned that the Bank of England could raise interest rates further to fight inflation.

The large drop in UK inflation in October supports the idea that UK interest rates are now at their peak.

So says Janet Mui, head of market analysis at RBC Brewin Dolphin:

“UK inflation data looks good all round. UK inflation slowed to 4.6% year-on-year in October from 6.7%, both the consensus and Bank of England’s expectations.

As widely expected, most of the slowdown in headline inflation between September and October came from domestic utility bills. But the good news is the decline in headline inflation was relatively broad based.

A reflection of domestic inflation pressure, the CPI services inflation dropped from 6.9% to 6.6% in October and below the Bank of England projection. Today’s data further strengthens the narrative of the end of the hiking cycle in the UK and markets are pricing in rate cut from June 2024.”

Resolution Foundation: Prices sharply higher than two years ago

Although the pace of inflation has slowed, it’s very important to remember that the UK has suffered very signifant price rises over the last two years.

The drop in inflation to 4.6% from 6.7% simply means the cost of living is still rising compared with a year ago, but at a slower rate.

The Resolution Foundation points out that the cost-of-living crisis is far from over, as Britain’s two-year inflation shock has left “a legacy of far higher prices”.

James Smith, research director at the Resolution Foundation, explains:

“Over the past two years, the cost of energy has surged by 49% while food prices have risen by 28% – far greater than the 14% increase in average earnings over this period.

“The sharp rise in the cost of these essentials mean that lower-income households have experienced the biggest inflation shock, and shows the very real risks to their living standards if the Chancellor does not fully uprate benefits in line with prices to maintain their real-terms value.”

Bloomberg: UK could cut benefits increase by £2bn by using October's inflation data

Today’s drop in inflation could be a blow to lower-income households who receive working-age benefits.

Bloomberg reported last night that the UK government is considering using October’s inflation number for next year’s rise in working-age benefits, rather than September’s.

The convention is to use September’s CPI reading (which was 6.7%) to set the change in benefits the following April.

But using October’s reading of 4.6% would save the Treasury about £2bn, Bloomberg’s Philip Aldrick and Ellen Milligan report.

They say ministers were waiting to see today’s inflation report before making a decision, adding:

The decision is for Work and Pensions Secretary Mel Stride, who could use another indicator, such as raising benefits in line with earnings, according to the people, who requested anonymity discussing decisions that haven’t been finalized. The call will be taken in time for next week’s Autumn Statement.

Chancellor of the Exchequer Jeremy Hunt is trying to find savings to build up fiscal headroom for potential tax cuts next year ahead of an expected election. With the governing Conservatives trailing Labour by some 20 points in recent polls, backbench Tories are clamoring for sweeteners they can use to persuade voters to stick with them.

More here (£).

Hunt: we are beginning to win the battle against inflation

Chancellor Jeremy Hunt has declared “we are beginning to win the battle against inflation”.

Hunt told broadcasters this morning that the goverment’s “very difficult decisions” on borrowing had helped hit the goal of halving inflation this year.

But the chancellor also cautioned that “there’s lots more work to do” to get inflation down to the actual UK inflation target of 2%.

Hunt says:

“In January, the Prime Minister said that his number one pledge was to halve inflation. People at the time said that was going to be easy to deliver, it would happen automatically.

“We now know that wasn’t the case, we took some very difficult decisions to control borrowing and debt, and we have now delivered that pledge a whole month early.

“There’s lots more work to do. We still have to bring inflation down to its target level of 2%.

“But now we are beginning to win the battle against inflation, we can move to the next part of our economic plan, which is the long-term growth of the British economy.

“That’s why next week will be an autumn statement for growth.”

Core inflation has fallen too

Encouragingly, core inflation in the UK has fallen, although not by as much as the headline rate of consumer prices.

Core CPI, which strips out energy, food, alcohol and tobacco, rose by 5.7% in the 12 months to October, down from 6.1% in September.

Now, it may seem perverse to exclude staple items such as food and energy – but this core measure of inflation is seen as a good guide to the inflationary pressures in the economy.

The ONS also reports that goods inflation dropped to just 2.9%, from 6.2%. That was mainly due to cheaper energy – energy prices fell by 16.0% in the year to October.

There was a smaller fall in service sector inflation, down from 6.9% to 6.6%.

Debapratim De, senior economist at Deloitte, says the fall in core inflation is welcome:

“The sharp fall in inflation in October is welcome news and significantly narrows the gap in price rises between the UK and its European peers. The continued easing in underlying price pressures, as evidenced by falling core and services inflation, is another positive development. Nonetheless, there is some way to go before inflation settles back to a pre-pandemic normal.

Today’s figures support the view among investors that the Bank of England’s interest rate has already peaked. A further fall in inflation could bring forward market expectations for the timing of the first rate cut next year.”

Biggest fall in UK inflation rate since 1992

Britain has just recorded its biggest drop in CPI inflation since April 1992, the month of John Major’s surprisingly successful election campaign.

The drop in CPI from 6.7% to 4.6% is the largest fall in the inflation rate since April 1992, the Office for National Statistics says, when inflation fell from 7.1% to 4.7%.

Mark Barrie, Funding & Strategic Partnership Director at accountancy firm Azets, says:

“The steep and welcome fall in inflation, from 6.7% to 4.6%, will be a shot in the arm to business and consumer confidence following an incredibly difficult few years, what with the pandemic and subsequent cost-of-living crisis.

It is rare good news and represents the steepest drop since 1992 when Whitney Houston’s I Will Always Love You was the best-selling single and the internet had yet to become part of our everyday lives.”

Bloomberg’s John Stepek points out that interest rates are now higher than inflation, for the first time in seveal years:

Updated

Despite falling so sharply last month, UK inflation is still higher than in other comparable economies.

In the US, we saw inflation drop to just 3.2% yesterday.

In the eurozone, annual inflation is estimated to have fallen to 2.9% in October.

In France, inflation (on an EU-harmonised basis) was 4.5%, while in Germany it dropped to 3%, according to statistics body Eurostat.

A chart showing UK, French, German and US inflation

Inflation is finally responding to two years of tighter monetary policy (ie higher interest rates), says Tom Stevenson, investment director for Personal Investing at Fidelity International.

Stevenson says today’s data justifies the Bank of England’s recent decision to pause its rate-hiking cycle, leaving interest rates on hold at 5.25% since August.

Stevenson says:

Today’s CPI reading of 4.6% allows the Prime Minister, Rishi Sunak, to claim that he has met his self-imposed target of halving inflation during 2023, although prices continue to rise faster in the UK than in comparable developed economies.

“The UK economy is clearly slowing as intended. The challenge remains to bring wages back into line with the broader economy’s sluggish growth prospects. This week’s employment data showed incomes are now growing faster than prices.

This is a positive for the economy but makes it harder for the Bank of England to bring overall inflation back to its 2% target. It suggests interest rates may need to stay higher for longer to finish the job.

Liberal Democrat Treasury spokeswoman Sarah Olney is urging the Treasury to announce more help for families and pensioners, and extra funds for the NHS, in the autumn statement next week:

Olney says:

“Rishi Sunak congratulating himself over today’s figures will be cold comfort for all the hard-working people still bearing the brunt of this Conservative chaos.

“For months on end, people across the country have been watching as their pay cheque gets squeezed from all sides, draining every spare penny. From the ever-increasing cost of the weekly shop to skyrocketing mortgage payments.

“Enough is enough. With next week’s autumn statement, the Government must properly help families and pensioners struggling with the cost-of-living crisis and give our NHS the funding it desperately needs.”

Chancellor Jeremy Hunt must decide whether to stick with the pensions triple lock, which would mean raising pension payments by 8.5% (the average rise in total earnings in May-July). However, Hunt could potentially the figure for basic pay (ex bonuses), which rose by 7.8%, instead.

Hunt must also decide whether to raise benefits in line with CPI inflation.

ICAEW: falling energy and higher interest rates get credit for lower inflation

Falling energy bills, and the economic drag caused by higher interest rates, should get the credit for the drop in inflation.

That’s the view of Suren Thiru, economics director at ICAEW (The Institute of Chartered Accountants in England and Wales).

Thiru says:

“This dramatic drop suggests that the UK has turned the corner in its battle against soaring inflation, particularly given the fall in core inflation, which indicates that underlying price pressures are also easing.

“While the Prime Minister has achieved his target to halve inflation this year, this owes more to the downward pressure on prices from falling energy costs and rising interest rates than any government action.

“Although subsequent declines will be more modest, the drag on demand from a softening jobs market and high interest rates may mean that inflation falls back to the Bank of England’s 2% target more quickly than they currently expect.

“This fall in inflation seals the deal on a December interest rate hold and may drive a three-way voting split among rate setters with a member voting for a rate cut as concerns over a flatlining economy grow.”

Reeves: Conservative ministers shouldn't pop champagne corks

Shadow chancellor Rachel Reeves has warned the Government not to start “popping champagne corks” about the fall in the rate of inflation.

Reeves points out that people still struggling with the cost of living.

She explains:

“The fall in inflation will come as some relief for families struggling with the cost of living.

“But now is not the time for Conservative ministers to be popping champagne corks and patting themselves on the back.

“After 13 years of economic failure under the Conservatives, working people are worse off with higher mortgage bills, prices still rising in the shops and inflation twice as high as the Bank of England’s target.

“Rishi Sunak is too out of touch and his party is too divided to help people who are worried about the cost of living.

“A Labour government’s priority would be making working people better off by boosting wages, cutting people’s bills and getting the economy growing again.”

Sunak: We have delivered on inflation pledge

October’s sharp drop in the CPI rate to 4.6% means Rishi Sunak can claim victory in his pledge to halve inflation by the end of this year.

And he has wasted no time in doing that.

In a statement just released, Sunak says:

“In January I made halving inflation this year my top priority. I did that because it is, without a doubt, the best way to ease the cost of living and give families financial security.

“Today, we have delivered on that pledge.”

Mathematically, Sunak is correct – CPI was 10.7% when he made his pledge.

However, as flagged earlier, the drop in inflation is mainly driven by cheaper energy costs compared with a year ago (when European countries were scrambling to fill their gas storage ahead of the winter).

Updated

Food inflation slowed

The pace of price rises for food and non-alcoholic beverages also fell sharply in October, but was still – just – in double-digits.

The annual inflation rate for food and non-alcoholic beverages dropped to 10.1% in October 2023, down from 12.2% in September.

That’s an improvement on the recent high of 19.2% hit in March 2023 (the highest annual rate seen for over 45 years).

But it’s still a very painful rate of price increases, which will hurt lower-income households badly.

Gas and electricity prices slumped in October

The largest downward contribution to UK inflation came from “housing and household services”, where the annual rate for CPI was the lowest since records began in January 1950, the ONS says.

That’s due to the drop in energy bills last month, after Britain’s energy price cap was lowered.

The ONS says:

Gas costs fell by 31.0% in the year to October 2023, compared with a rise of 1.7% in September. This is the lowest annual rate since records began in January 1989.

Electricity costs fell by 15.6% in the year to October 2023, compared with a rise of 6.7% in September. This is the lowest annual rate since records began in January 1989.

On a monthly basis, CPI did not change in October, the Office for National Statistics says.

That means prices (measured by a basket of goods and services) were flat last month, compared with a rise of 2.0% in October 2022 when energy prices were surging.

Updated

UK inflation drops to 4.6%

Newsflash: UK inflation has fallen to a two-year low, as the cost of living squeeze eases.

The UK’s CPI index has dropped to 4.6% in October, down from 6.7% in September.

That’s the lowest rate of price increases in two years, and means inflation has more than halved since late last year.

It’s an even bigger fall than the City expected.

As expected, the decline follows the drop in energy bills last month after Ofgem lowered the cap on household bills.

But, although inflation has dropped, prices are still rising compared with a year ago.

This means that real wages are continuing to rise - we learned yesterday that total pay rose by 7.9% per year, on average, in July-September.

Grant Fitzner, chief economist at the Office for National Statistics, says::

“Inflation fell substantially on the month as last year’s steep rise in energy costs has been followed by a small reduction in the energy price cap this year.

“Food prices were little changed on the month, after rising this time last year, while hotel prices fell, both helping to push inflation to its lowest rate for two years.”

Updated

Darius McDermott, managing director at Chelsea Financial Services, says today’s UK inflation report could move the markets – especially if CPI is higher than expected.

McDermott explains:

The consensus is a fall of two percentage points to 4.8%. Generally, if the data is in line with consensus, you wouldn’t expect a major move in bond and equity prices. We have also seen a big fall in bond yields ahead of the data which means a fair bit of good news has been priced in. This could mean the market is particularly vulnerable to a negative surprise in the data.

The fall in headline inflation we will see tomorrow is largely from an automatic mechanical adjustment as the inflation figures for October 2022, when the month-on-month inflation was exceptionally high, falls out of the data. The market will likely be more concerned with core inflation, which is expected to fall from 6.1% to 5.8%.

If the numbers were to come in significantly under, we would anticipate a sharper move upwards in all risk assets – particularly UK smaller companies, which we believe are already significantly undervalued – that could fuel a broader rally until the end of the year.

Breaching that 5% barrier is a significant psychological threshold and also the government’s target. The bottom line is that it has become an important number for markets: miss significantly and it could be ugly; beat it and expect a rally.

Updated

Preview: Inflation fall would ease interest rate pressure

The annual pace of UK price rises is expected to have slowed sharply when the latest official figure for October is released on Wednesday, easing fears that the Bank of England could increase interest rates next month, my colleague Phillip Inman writes.

City economists polled by Reuters have signalled that inflation as measured by the consumer prices index (CPI) will fall almost two percentage points to 4.8% from September’s 6.7% reading.

The decline does not mean prices are falling, just that they are rising less rapidly, and would remain well above the central bank’s 2% target, but would be a significant signal to Bank rate-setters that prices are on course to come down over the next year without the need for further increases in the cost of borrowing.

Here’s our preview of this morning’s inflation data:

Introduction: UK inflation expected to hit two-year low today

Good morning.

Britain may be able to celebrate an easing in the cost of living squeeze today, with inflation expected to have dropped sharply last month.

The latest inflation reading, due at 7am, is expected to hit a two-year low in October.

Economists predict that the CPI inflation rate will fall to around 4.8% in the year to October, down from the 6.7% in both September and August.

UK inflation to September 2023

Such a sharp fall in the speed of price rises would allow Rishi Sunak to claim victory in his promise to halve inflation this year (CPI was 10.7% when he made the pledge).

But much of the credit should really go to energy regulator Ofgem, who cut the maximum price which suppliers can charge for power from the start of October.

That means average household energy bills fell last month.

Economists at Investec Economics have said that an inflation slowdown in October “should not come as a huge surprise” because last year saw gas and electricity prices soar.

Food price pressures may also have eased; data provider Kantar reported last week that grocery inflation has dropped to single digits for the first time in a year and a half.

Sanjay Raja, chief UK economist for Deutsche Bank, has predicted that the UK inflation picture “will likely change dramatically in October” with headline inflation expected to drop a lot further today.

Raja told clients this week that “more disinflation pressure is building”, with Deutsche Bank predicting UK inflation will have fallen “closer to 3%” by next April.

A sharp drop in inflation would be cheered in the Bank of England, where policymakers are trying to steer the pace of price rises down to its 2% target.

Financial markets already predict the BoE will leave interest rates on hold, at 5.25%, until next spring, with many economists forecasting a cut to 5% in May 2024.

But inflation is still lower in other advanced economies.

Yesterday, US inflation fell more than expected, to just 3.2% in the year to October, down from 3.7% in September, sparking a strong rally on Wall Street.

The agenda

  • 7am GMT: UK inflation report for October

  • 7am GMT: UK PPI index of factory gate prices

  • 9.30am GMT: UK house price index for September

  • 9.30am GMT: UK rental prices index for October

  • 10am GMT: Eurozone trade balance for September

  • 1.30pm GMT: US PPI index of factory gate prices

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