what’s happening? This week, inflation fell to its lowest level in two years. Rishi Sunak He quickly took credit for himself.
New statistics from the Office for National Statistics (ONS) revealed The price increase rate in October was 4.6%down from 11.1% the previous year.
When inflation was 10.1% in January, Mr Sunak set one of his goals to halve the rate by the end of the year.Five key priorities for 2023”.
And within minutes of the ONS confirming this had become a reality, Mr Sunak issued a statement saying: “Today we delivered on that promise.”
but, The Bank of England has a responsibility to control inflationand the price drop is primarily caused by the drop in global energy prices, so why would the government take credit for it?
That was the question Prime Minister Jeremy Hunt was asked when he appeared on the BBC’s Sunday Laura Kuenssberg show ahead of this week’s Autumn Statement. Viewer Geoffrey Gill asked Hunt: “Why are you and Rishi Sunak claiming credit for this? Shouldn’t you also be responsible for increasing inflation to more than 10%?”
Here, Yahoo News UK looks at it from different perspectives.
What do economists say?
Leading economists say it is external factors – falling global energy prices and rising interest rates – that are driving inflation down to 4.6%.
Commenting on the group’s own inflation figures this week, ONS chief economist Grant Pfitzner told the BBC: [Ofgem] What is the upper limit for energy prices this year? ”
Paul Johnson, director of the Institute for Fiscal Studies, said: “It is the Bank of England’s job, not the government’s, to contain inflation, so it has always been inappropriate for the government to have a target or a commitment to halve inflation.” Stated.
“It’s not their job and it’s not something they have much control over.
“It was an opportunistic commitment given the following facts:” [the] The central bank had predicted in January that inflation could easily be halved. ”
Suren Till, head of economics at the Institute of Chartered Accountants in England and Wales, acknowledged that the UK had “turned a corner”, but added: “This is largely due to downward pressure on prices from falling energy costs and rising interest rates.” added. [currently 5.25%, a 15-year high] than any government action. ”
When interest rates rise, According to the bank“It makes it more expensive for people to borrow money and encourages them to save, which means that people tend to spend less overall. If people spend less on goods and services overall, prices rise less. It will tend to be more gradual.” That will reduce inflation. ”
What does the government say?
Mr Hunt referred to a question about taking credit on Sunday’s Laura Kuenssberg show, claiming the government had “played a role” in “eye-opening decisions” about taxes and government spending.
“We know why inflation rose after the energy crisis, the biggest energy shock since World War II,” he said.
“But I think it’s worth hearing from someone like the Governor of the Bank of England.” [Andrew Bailey] Who’s to say that if we’re going to bring down inflation, which was over 11% when Rishi Sunak became chancellor and I became chancellor, the Bank of England and the government need to work together? .
“The Bank of England’s job is about interest rates and that is done independently. What the government is doing is making sure that our borrowing and debt is managed.
“In order to get the debt under control, I had to make some eye-opening decisions. It is precisely because the government made some very difficult decisions a year ago on both taxes and spending. The Bank of England was able to play a supportive role in bringing down inflation.”
What happens with inflation?
Inflation is expected to continue easing, albeit at a slower pace than in October. Experts at consultancy Pantheon Macroeconomics expect it to fall to 3.5% by March.
However, it is still far from the 2% target set for the government by the Bank of England. That means Sunak and Hunt are still under pressure.
Bank of England Governor Bailey also predicted last week that inflation would not return to this target until near the end of 2025, warning there was “no room for complacency”.
The path may not be smooth, as rising costs at the pump threaten to push up inflation, and energy markets remain vulnerable to price shocks.
Meanwhile, households will soon find their utility bills will rise again, with hopes of relief from the cost-of-living crisis on hold.
Ofgem is expected to announce the latest price cap on Thursday, with energy consultancy Cornwall Insight predicting the price for a typical dual-fuel home will rise to £1,931 from the current £1,834. . This is a 5% price increase from January to March.