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UK inflation shoots up to 5.2% after energy price hikes

Utility companies’ energy price hikes drag annual rate of CPI inflation to record high.

 
UK inflation shoots up to 5.2% after energy price hikes

Inflation in the UK rose to 5.2% annually in September on the government’s preferred consumer prices (CPI) measure, up from 4.5% in August, dragged higher by utility companies’ energy price hikes.

The broader retail prices index (RPI) showed a rise to 5.6% in September.

Average gas and electricity bills rose by 13% and 7.5% respectively between August and September, according to the Office for National Statistics, which said energy price hikes were the biggest driver behind the rise in inflation by far. All of the 'Big Six' energy companies have recently announced double-digit price rises for millions of customers. 

The increase adds further pressure onto struggling households, while savers and investors will find it even more of a challenge to find returns above inflation. The annual rate of CPI inflation has never been higher since official series began in January 1997, while the annual increase in RPI was higher only in June 1991.

The Bank of England and City economists have been expecting inflation to climb higher before dropping next year as a result of the weak economic growth outlook, lower commodity prices and VAT dropping out of the annual comparison. 'We could see inflation rise further in October, up to 5.4% or so, but thereafter it should all sharply,' said James Knightley of ING.

Inflation has been persistently above the Bank of England’s 2% target, but the Bank’s rate setting committee (MPC) is not expected to increase interest rates. Instead, it has been doing more to stimulate the economy, recently announcing the launch of ‘QE2’, the trigger for another £75 billion of quantitative easing to boost the UK’s ailing economy.

Chris Williamson, economist at Markit, said: ‘The Bank is clearly more concerned about the current fragility of the recovery than current above-target inflation, meaning further stimulus could well be on the cards as policymakers seek to prevent the country from sliding back into recession if business and consumer confidence fails to pick up soon, which seems unlikely.'

Tomorrow, the Bank will publish the minutes from the Monetary Policy Committee’s October meeting, which will provide further indications of the committee’s future intentions.

Further impacts

According to price comparison website Moneyfacts, to beat inflation a basic rate taxpayer needs to find a savings account paying 6.5% or more, while higher rate taxpayers require a product paying at least 8.67%. But there are currently no regular accounts that beat inflation, and just five accounts that track the rate of inflation.

Today's CPI reading will be used to calculate next year's increase in the state pension, and other benefits. While good news for some individual recipients, professor Philip Booth of the Institute of Economic Affairs warned 'the increases in benefits will put more pressure on government borrowing and force more spending cuts or tax increases to compensate'.

September’s rise in inflation will also have further repercussions for businesses as annual increases in Business Rates are based on the previous September's RPI reading. Amid high street stress, the British Retail Consortium (BRC) warned that today’s figure adds £350 million to retailers' business rates bills.

23 comments so far. Why not have your say?

Tony Peterson

Oct 18, 2011 at 12:24

Moral:

You only lose value by saving money in these Kafkaesque times, when the BoE, mandated to keep inflation low, deliberately debases the currency. You mustn't feel sorry for the dears - their own pension fund is almost entirely index linked.

You might create real value for yourself by buying income producing assets. Ownership is the key, not bank balances.

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sgjhaghsdg

Oct 18, 2011 at 12:46

What's savage is that savings interest is taxed on the absolute return and not the return above inflation. So, they devalue the currency by running the printing presses and then tax our savings such that we can't keep up. Sweet!

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Anonymous 1 needed this 'off the record'

Oct 18, 2011 at 13:11

It is to be expected...... someone has to pay for the lack of individual savings/investments and overspending by the Govt.

So we all pay.

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Chuck

Oct 18, 2011 at 13:18

I think that the BoE is storing problems for the future will cause huge wage & asset price inflation in years to come. Everyone will ask for pay rises once the economy recovers, and everyone will remember how asset prices were maintained by (the now obvious intention of) the BoE. This will only not be the case if the UK follows the same path as Japan over the past 20years.

I'm no expert, but these are the actions I will take. Demand more pay or switch jobs (in recovery time), and buy multiple houses using as much borrowed money as possible.

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Jonathan

Oct 18, 2011 at 13:21

Is it true that the BoE pensions are RPI linked?

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Medved

Oct 18, 2011 at 13:29

@Tony Peterson

"You might create real value for yourself by buying income producing assets. Ownership is the key, not bank balances"

Exactly right and also a lesson for those starting a career who are considering whether or not to invest in a pension scheme..

It's no accident that half the houses which do get sold are sold for cash.

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Tony Peterson

Oct 18, 2011 at 13:33

Jonathan

The information is public. Put Bank of England staff pension fund into Google.

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Medved

Oct 18, 2011 at 13:35

"Jonathan

Maybe you can follow the thread from the link below. If Mervyn's pension is index linked it's a fair bet the rest of his cronies are similar.

http://order-order.com/2011/06/02/the-bank-of-englands-great-inflation-swindle/

says

"Guido has discovered that Mervyn King’s pension is 94.7%* invested in index-linked, inflation protected securities, up from an already remarkably high 88.2% the year before."

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mikeran

Oct 18, 2011 at 14:01

I believe that 4 out of the 6 major energy suppliers in the UK are foreign owned, so presumably some or of their profits line foreign coffers. In addition Joe public has been contributing to green energy taxes. And yet most if not all of the UK wind farms are owned or constructed by non uk companies.

As for savings and pensions well in addition to MERv doing his bit with low interest rates and high inflation except for those beneficiaries mentioned. Our friends in the City have been having a field day at every global Political bad news statement. No Uk company performance is now measured by its Share Price this has been decimated and replaced by computer program trading based upon the next political statement .

If the protesters understand this , then that is perhaps why they are linking hands globally against these institutions. For the next generation the goalposts have already changed, with respect to employment, savings, houses and Pensions.

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clive chafer

Oct 18, 2011 at 14:04

Inflation at 5.6% and massive money printing being done. What the hell is going on? Has nothing been learned from the inflationary days of the 1970s, hyperinflation in Zimbabwe and numerous other ugly examples. No question mark used as it's rhetorical; quite clearly nothing has been learned by supposed experts like King and his cronies, with their own RPI linked pensions. "We're all right Jack" is obviously the adage of the people to whom we are meant to look in order to control the extremely damaging menace of inflation.

Wonderful, isn't it?

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Tony Peterson

Oct 18, 2011 at 14:17

The trouble is that we are governed by a shifty lot of slow learners. When the penny drops with George that he can eliminate the deficit by simply printing the money to buy back all the treasury debt (the Weimar solution, as it's known in the trade) the economy can be well primed for future growth.

Borrowing some cheap money myself , and getting a large factory to mass produce the lockable wheelbarrows I have patented and which we shall all soon need.

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Potus

Oct 18, 2011 at 14:29

So..."UK inflation shoots up to 5.2% after energy price hikes..." Coool.

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Anonymous 2 needed this 'off the record'

Oct 18, 2011 at 15:11

Forget joining the Euro the Pound will soon be joining the South American PESO block.

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Medved

Oct 18, 2011 at 17:06

I seem to recall one of the people here (not saying who) predicting (on another thread) that gold would be over 2000 now and we should all be into it with all we had.

Would that person like to raise their hand ?

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sgjhaghsdg

Oct 18, 2011 at 17:14

It might have been the same person who said the FTSE 100 wouldn't get back to 5400 this year, if ever.

I like testable predictions.

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Chuck

Oct 18, 2011 at 17:27

Given the BoE predictions on inflation, these Gold & FTSE predictions sounds like they came from Merv "the Swerve" King.

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Tony Peterson

Oct 18, 2011 at 17:34

Wasn't me in either case, Medved or sgjhaghsdg.

However, although I wouldn't like to give time parameters, I am certain that gold ONE day will go well over 2000. Paper pounds are breeding much more rapidly than sovereigns, so eventually gold will make it to £3K, not just 2. Wouldn't even start to wonder when.

And although I'm heavily into FTSE100 shares, I won't mind if the index makes it down to 4000 this year. Recent dividends need placing. As FTSE falls the yields get tastier.

If instead FTSE returns over 6000 this year and gold continues down I might just have to pick up some more sovereigns.

Dips are far more interesting entities than peaks.

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sgjhaghsdg

Oct 18, 2011 at 18:09

I'm sure that gold will one day get to £3k as such is the nature of inflation, however, without a timescale, we don't know whether the gold will have more or less buying power at that time.

I agree totally about tasty yields and dips being opportunities. There have been five good buying days over the last 10 weeks and I've bought heavily on four of them.

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Paul 2

Oct 18, 2011 at 18:49

Re B of E and government index linked pensions, those not so fortunate to have these will not only see their non-indexed pensions-in-payment becoming worth less but will as well have to pay more tax to help fund the inflationary increases of the government index-linked pensions received by others.

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jonners

Oct 18, 2011 at 21:17

To those who personalise this, Mervyn King could make three times his salary in the private sector. To the spike in inflation, it's the actions predicted in economic theory of a form of monopoly, oligopoly, where a few firms control the market and follow a price leader. In the case of energy the regulator is useless. The only answers are the Goverment taxing the super normal profits, taking a controlling interest or outright nationalisation. They were nationalised in the past not out of rabid socialist policies but because these utilities are so essential to the population.

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ynys

Oct 18, 2011 at 22:41

sgjhaghsdg

'savings interest is taxed on . . . return above inflation' What a good idea though not quite as good as: not taxed at all (since it has already been taxed while being earned). Glad to see the media are starting to turn up the heat somewhat on those incompetent, brown nosers at the BOofE.

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James Park

Oct 19, 2011 at 08:29

Mervyn King has stated that inflation should drop sharply next year when certain causes, e.g energy price hikes,fall out of the calculations. What he doesn't tell us that those prices rises are still there to be paid by all of us.

I took a pay cut about three years ago and don't expect to see any sort of redress in the foreseeable future.The people who caused this problem are not suffering but people like me have to take the pain.

But, I take comfort in the fact that we're all in this together!!.

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Medved

Oct 19, 2011 at 09:19

@jonners

Your comment about Mervyn King's possible earnings in the private sector is naive. Earnings are always secondary to power. Power in it's broadest sense is the primary thing that a person such as King (or indeed anyone) seeks.

Spending and wasting more money in the inefficient nationalisation of the energy companies seems to me counterproductive. More workers would be paid more by the consumer to produce less energy, less efficiently, at higher cost. Nationalisation always works like that.

I have some sympathy with your idea of a tax and much closer regulation. Many of those companies are ultimately owned by foreigners are they not ?

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