How much credit can the government take for fall in inflation?

Rishi Sunak had something to celebrate today when inflation - another one of his 'five priorities' - fell sharply. But some are questioning whether it is the prime minister's policies that have brought about the drop. Joel Hills reports

”There’s lots more work to do.”

The chancellor’s reaction to the latest inflation figures feels proportionate.

The drop in the headline annual rate to 4.6% in October allows Jeremy Hunt to boast that he has delivered on the arbitrary pledge he made in January, to “halve inflation” by the end of 2023.

But, as he rightly points out, the target rate for price stability is 2% not 4.6% and it’s too soon to be declaring victory.

The government cannot be held responsible for the painful surge in inflation the UK has experienced and it’s not really in a position to claim much of the credit for its decline.

The wild swings in the global price of energy and food have done more to impact consumer prices than anything the government has done.

That said, the government has played a very important role in offering financial support to households and businesses.

The annual rate of inflation was always going to fall significantly in October.

Last month, energy regulator OFGEM’s price cap eased back to £1,800 a year for the typical household in the UK. In October last year, the cap rose to £2,500.

But the slowdown in price rises was larger than expected - the Bank of England has 4.8% pencilled in - and more widespread.

ITV News Economics Editor Joel Hills reports live on the economic fallout of the dip in headline inflation rates

What’s known as “core” inflation, which strips out movement in food and energy prices - fell back to 5.7% from 6.1%.

“Goods” inflation slumped and “services” inflation, which the Bank views as a barometer of the degree to which inflation is feeding itself domestically, fell slightly to 6.6%.

It’s obviously good news that inflation is easing, on whatever measure you choose.

But, although the speed of price rises has slowed significantly, prices are still rising and at a level that will still be causing hardship.

Food inflation is running at 10% a year. Food prices are 30% higher than they were two years ago. Energy bills are 50% higher than two years ago.

Pay is now rising faster than prices but there’s a lot of lost ground to cover and the cost of living crisis isn’t over for many households.

There are good reasons to believe that inflation will continue to fade but the Bank thinks it will be well into 2025 before it reaches 2% again.

Pay growth in the UK is much stronger than the Bank will tolerate.

Jeremy Hunt is correct. Hard yards lie ahead. The markets still think it will be next summer before will see a cut in interest rates.

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