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buy fewer things, reducing the demand for In October, the International Monetary Fund
goods and slowing price rises. Businesses (IMF) predicted the UK would have the
also borrow less, making them less likely to highest inflation rates of any G7 economy in
create jobs; some may cut staff. both 2023 and 2024. As a result, it thinks UK
interest rates will remain relatively high until
In August, the Bank increased interest rates 2028.
for the 14th time in a row, taking the main rate
to 5.25%. It had been widely expected to raise In January, Prime Minister Rishi Sunak said
rates again in September but instead held halving inflation by the end of 2023 was one of
them at 5.25%. the government’s five key pledges.
Are wages keeping up with inflation? What’s happening to inflation and interest
Official figures showed that - on average - rates in Europe and the US?
regular pay excluding bonuses grew by 7.8% Other countries have also been experiencing
between June and August, compared with the a cost-of-living squeeze. Many of the reasons
same period a year earlier. This is higher than are the same - increased energy costs,
the rate of inflation was in the same period shortages of goods and materials, and the
(7.1%), which means real wages grew for the fallout from Covid.
first time in nearly two years. However, unions
point out that many workers have received The annual inflation rate for countries which
smaller pay increases, and there have been use the euro was estimated to be 4.3% in
widespread strikes over pay. the 12 months to September, down from
5.2% in August. The European Central Bank
The government has previously argued that had been increasing interest rates to try to
big pay rises could push inflation higher bring eurozone inflation under control.On 14
because companies might increase prices as September, it raised its key interest rate - the
a result. benchmark deposit rate - to 4%, a record high,
but indicated it might be the last hike for now.
When will inflation go down?
Lower inflation doesn’t mean prices fall. It In the US, inflation was 3.7% in the year to
September, the same rate as in August. At
just means they rise less quickly. The Bank of its September meeting, the US central bank
England has predicted inflation will drop to 5% kept its key interest rate unchanged between
by the end of 2023, rather than the 4% it had 5.25% and 5.5% as it considers whether it has
been anticipating.
done enough to stabilise prices.
Bank governor Andrew Bailey said it was August had seen the 11th increase since early
“crucial that we see the job through” and get 2022, with rates at their highest for almost two
price rises back to the 2% target, because decades. It warned further raises would follow
people “should trust that their hard-earned “if appropriate”.
money maintains its value”. But he admitted
that inflation had been “more sticky than
previously expected”. bbc.co.uk
10 November 2023
