More pain to come for vulnerable households despite hopes UK inflation has peaked

Another unwanted record breached, with a fresh rise in inflation to the highest rate since October 1981. Despite the cap on energy bills put in place by the government last month, households across Britain are still facing immense pressure in the worst cost of living emergency in generations.

Soaring gas and electricity costs were the culprit yet again as the consumer prices index rose by 11.1% in October, up from 10.1% a month earlier, even with the limit introduced by Liz Truss to cap average bills at £2,500 for a typical household.

However, the pressure on consumers was much broader because of the soaring price of a weekly shop; with food and nonalcoholic drink inflation reaching 16.4%, the highest since Elvis Presley was topping the charts in September 1977, a month after his death.

In the cost of living shock sparked by the Covid pandemic and Russia’s war in Ukraine, poorer families are bearing the brunt. According to the Office for National Statistics (ONS), the gap in the inflation rate between the poorest and the richest families was the largest since 2009, reflecting the damaging nature of the crisis for Britain’s most vulnerable.

Low-income households spend a larger share on energy, food and other basic essentials, meaning the 130% annual rise in gas prices and 66% leap in electricity is hitting them hardest.

Despite the bad news, it could have been worse without the government’s price guarantee, with the ONS estimating that a headline inflation rate of 13.8% could have been breached. There are also hopes that October could mark a turning point in the battle against inflation.

Economists anticipate that a combination of a weaker economy, cooling wholesale energy prices and the waning impact of global supply shocks may lead to an easing of price pressures. With Britain on the brink of a lengthy recession and rising unemployment, this stands to reason.

Households can, however, expect to face continued pain for some time. Although the fall in energy prices in wholesale markets should feed through to consumer prices, they still remain significantly higher than before the crisis began. As a result, the Bank of England expects inflation to tick above 10% for several months before falling again.

That means the Bank is likely to launch another sharp rise in interest rates next month, adding to the pressure on borrowers. Despite the prospects of a prolonged recession, Threadneedle Street argues it is duty bound to get inflation back down to its target rate of 2%.

This backdrop of high inflation and a weaker economic outlook will make for some difficult choices for Jeremy Hunt at Thursday’s autumn statement. After the latest figures, the chancellor was clear that getting inflation down was a key priority to stabilise the economy, alongside his aim of balancing the books after the disaster of Truss’s mini-budget.

“This insidious tax is eating into pay cheques, household budgets and savings, while thwarting any chance of long-term economic growth,” he said. “We cannot have long-term, sustainable growth with high inflation.”

However, the big danger is that drastic action to cut government borrowing through tax rises and spending cuts could choke off the economy, while further ripping up the tattered welfare state at a time when families need it most.

Hunt will be called on to take action to provide renewed support with a focus on supporting the most vulnerable, especially now that the government’s emergency energy price guarantee will expire in April, rather than the two years Truss had promised.

Without a replacement for the scheme, the Resolution Foundation thinktank estimates households’ annual bills could reach £4,000. That is a simply unsustainable sum for millions of people.