“We are beginning to win the battle against inflation”
Some positive economic news was delivered last week in the form of better-than-expected inflation data for October. The latest official release from the Office for National Statistics (ONS) revealed that in the 12 months to October, the Consumer Prices Index (CPI) rose by 4.6%, down from 6.7% in September. A Reuters poll of economists had predicted an October reading of 4.8%.
Falling from a peak of 11.1% in October last year, the annual rate has eased as household energy prices reduced year-on-year. Not all prices are falling, but many are rising less quickly.
Commenting on the largest one month fall in the annual CPI rate since April 1992, Chancellor Jeremy Hunt said, “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.”
Rishi Sunak has therefore met his target to halve inflation, a promise he made at the beginning of the year when the rate averaged 10.7% in the final quarter of 2022. Last week the Prime Minister said, “In January I made halving inflation this year my top priority … today, we have delivered on that pledge.”
The reading is likely to reduce concerns of a further increase in interest rates again this year, despite it being more than twice its 2% target. The final Monetary Policy Committee meeting of the year will conclude on 14 December.
UK retail sales
ONS retail sales data for October has revealed that volumes fell unexpectedly, declining by 0.3% in the month, following a fall of 1.1% the previous month. With the cost of living and bad weather during October weighing on volumes, shoppers purchased less food and fuel during the month.
ONS Deputy Director for Survey and Economic Indicators commented on the data, “It was another poor month for household goods and clothes stores with these retailers reporting that cost of living pressures, reduced footfall and poor weather hit them hard.”
US – China relations
The President of the People’s Republic of China Xi Jinping travelled to the US last week, his first trip to the States in six years, where he met with President Joe Biden to discuss bilateral cooperation between the two nations. Among the key topics of conversation were the restoration of military communication, artificial intelligence, and agreements on curbing fentanyl production. After the meeting, the Chinese leader professed, “The China-US relationship has never been smooth sailing over the past 50 years and more… yet it has kept moving forward amidst twists and turns. For two large countries like China and the United States, turning their back on each other is not an option.”
Autumn Statement speculation
With Jeremy Hunt set to deliver his Autumn Statement on 22 November, speculation has been rife about possible inclusions. It appears less likely that rumoured changes to Inheritance Tax will be introduced until the Spring Budget, with Mr Hunt insisting that economic growth remains his current priority. However, he has not ruled out cutting other taxes such as Income Tax or National Insurance. The Prime Minister added to this speculation on Monday, saying “We can now move on to the next phase of our economic plan and turn our attention to cutting taxes. We will do so seriously, we will do so responsibly, but that time is now here.”
There is also expected to be a focus on business taxes, as cutting them is seen as key to helping the economy to grow. On support for businesses, the Prime Minister said he wanted to help companies “invest, innovate and grow through lower taxes and simpler regulation.“
There has been speculation about benefit values which are normally uprated each April with the inflation rate of the previous September. The government may consider using the October rate of 4.6% rather than September’s 6.7%. According to The Institute for Fiscal Studies (IFS), this would cut working-age benefits spending by about £3bn in 2024/25.
The Chancellor will also unveil the latest economic update and forecasts produced by the Office for Budget Responsibility (OBR).
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All details are correct at time of writing (22 November 2023)