Britons face surge in cost of living as fuel prices push inflation to 3.2%

  • Petrol up 2.1p a litre between Sept and October
  • Beer, wine and tobacco now more expensive
  • Rates ‘to stay on hold’ despite inflation pressure

Britons were hit with another above-target hike in the cost of living last month as sharp rises in fuel prices sent inflation to 3.2 per cent, official figures revealed today.

The increase in the Consumer Prices Index (CPI) – up from 3.1 per cent in September – has forced Bank of England Governor Mervyn King to write another letter to the Chancellor explaining why inflation is so far above the 2 per cent target.

Soaring costs at the petrol pumps were largely behind the CPI increase following the Government’s fuel duty rise on October 1, according to the Office for National Statistics (ONS) data.

Inflation letter: Bank of England boss Mervyn King has to publish an open letter if CPI is more than 1 per cent above the 2 per cent target and thereafter every three months if it fails to drop back

Inflation letter: Bank of England boss Mervyn King has to publish an open letter if CPI is more than 1 per cent above the 2 per cent target and thereafter every three months if it fails to drop back

The Bank boss has to publish an open letter if CPI is more than 1 per cent above the 2 per cent target and thereafter every three months if it fails to drop back. He has now had to pen four letters in a row to the Chancellor.

CPI is now back up to the level seen in June having remained stubbornly above target since November last year.

And there is expected to be further pain to come for households, with the Bank warning in its latest report that higher bills and the impending VAT rise could see CPI spike to 3.5 per cent over the coming months.

The ONS said petrol prices rose by 2.1p a litre between September and October, while beer, wine and tobacco were also more expensive.

Big increases in computer games bought on the High Street also drove a record rise in inflation for recreation and culture goods.

But there was some relief on food bills as shoppers were helped by lower vegetable and meat prices, with pork in particular cheaper due to healthy stock levels, said the ONS.

Property price falls sent the Retail Prices Index (RPI) measure of inflation, which includes housing costs, down to 4.5 per cent in October from 4.6 per cent in September – its lowest level since March.

House prices have been falling in recent months, while they were rising this time last year.

The Bank’s assurances today will come as little comfort to households already being squeezed by higher costs and the Government’s deficit-busting measures.

TUC general secretary Brendan Barber said: ‘This is bad news for struggling families around the UK and the VAT increase in January will add further to inflation.

‘Today’s figures mean a harsh cut in living standards and will take much needed spending power out of an already fragile economy,’ he added.

October’s rise in inflation puts pressure on the Bank as it is caught between the need to calm inflation and support the recovery.

There had been hopes that the UK would follow the lead of the US soon with another bout of quantitative easing (QE) to boost the money supply.

But economists said the worryingly high CPI outlook was unlikely to see any further QE until next year at the earliest.

Howard Archer, chief economist at IHS Global Insight, said: ‘The likelihood is that nothing will happen on the monetary policy front in the next few months at least.

‘If the Bank of England acts in the near term it is most likely to be to re-engage in QE, but we suspect that – with inflation likely to rise in the near term and stay above-target through 2011 – most MPC members would prefer not to do that unless the economy really falters markedly.’

Policymakers held QE and interest rates at 0.5 per cent this month and comments from the Bank have sought to dampen fears that it will respond to high inflation with a knee-jerk reaction to raise rates.

Mr King stressed again today that the Bank needs to set policy in a ‘forward-looking fashion’, considering the medium-term outlook rather than immediate pressures.

However, there has been a widening split emerging on the MPC, with one member already calling for a rate hike to ease inflation and another committee colleague voting for more QE.

More clues on the Bank’s latest voting pattern will emerge tomorrow when the minutes of the latest rates meeting are due.

Despite the disappointing CPI figures, there was some relief on food bills as shoppers were helped by lower vegetable and meat prices, with pork in particular cheaper due to healthy stock levels, said the ONS.

Meanwhile, property price falls sent the Retail Prices Index (RPI) measure of inflation, which includes housing costs, down to 4.5 per cent in October from 4.6 per cent in September – its lowest level since March.

House prices have been falling in recent months, while they were rising this time last year.

source: dailymail.co.uk

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