16 November 2022
If you are covering the latest UK inflation statistics, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“UK inflation has risen once more, reaching 11.1% in October – a significant increase of 1% compared to September’s 10.1%. This figure is expected to climb further still in the coming months, and this latest data shows inflation has already surpassed the Bank of England’s prediction that inflation will rise to around 11% in Q4 2022. Rising food prices continue to have a significant impact, but growing household energy bills were the primary reason for the increase this month.
“All eyes will be keenly watching the Chancellor as he lays out his long-awaited Autumn Statement tomorrow, during which he will outline the government’s plan to fill the current hole in public finances. The freezing of various tax thresholds and allowances for an additional couple of years is widely anticipated as the Chancellor looks to take advantage of rising inflation.
“As inflation rises, so too do wages, and in an era of frozen tax thresholds and allowances this will see many people tip over into the next income tax bracket or even into the realm of paying taxes they might never have previously considered. Making this stealthier move as opposed to raising actual tax rates may be an easier pill for taxpayers to swallow initially, and in the longer term it will line the government’s pockets as people will be paying more tax than they might realise.
“While the autumn has so far been rather mild, as the winter draws in and the demand for gas increases, the real impact of higher energy bills will be revealed. The energy plan introduced under Liz Truss means bills remain capped at £2,500 for now, but this is only set to last until April. Any changes to the support offering – whether they are announced at the Autumn Statement or nearer the time – could have a knock-on effect on inflation which could further boost Treasury coffers.
“The Bank of England hiked interest rates by 0.75% to 3% at its latest MPC meeting, marking the biggest increase in over three decades. The reaction following the Autumn Statement and the OBR’s economic forecast – which with hope will be far less turbulent than that which followed Kwasi Kwarteng’s mini-budget – will be a key factor in the Bank’s decision making going forward.
“While anything is possible tomorrow, if the government opts to rely on continuing high levels of inflation as expected, it would likely be a safe bet. The dip in inflation seen back in August looks to have been a fluke, and it is unlikely that a fall in inflation will materialise any time soon.”
