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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Mini-budget caused ‘full-scale liquidation event’ for pension funds; UK inflation hits 10.1% – as it happened

Inflation United Kingdom Jeremy Hunt Office for National Statistics Liz Truss Larry Elliott TUC
The Bank of England in the City of London.
The Bank of England in the City of London. Photograph: Alastair Grant/AP

Closing post

That’s all for today – here’s our main stories, including the jump in UK inflation back to a 40-year high.

Sir Jon Cunliffe explains that the Bank couldn’t have launched its pledge to buy up to £65bn of bonds to stabilise the markets after the mini-budget, without the indemnity it received from the Treasury.

Otherwise, the risk to the Bank’s balance sheet would have been too great.

In the event, the Bank only spent a portion of the programme, and doesn’t know if it will make a profit or a loss until it sells the bonds.

Deputy governor Cunliffe says the central bank did not want to hold these bonds for a long time, telling the Treasury Committee:

“We’ve said that we’ll unwind in a timely and orderly manner,”

Updated

So is the Bank of England’s recent gilt-buying episode behind it, so it can resume quantitative tightning?

“The LDI episode I hope is behind us,” Jon Cunliffe replies.

The evidence is that it is, but you never say never in this game, he adds.

There could be a big adjustment in the financial markets to the government’s fiscal plans, in either direction. The Bank doesn’t want to prevent that adjustment, it just wants to avoid it overshooting.

Back on the LDI pensions crisis, Sir Jon Cunliffe says pension funds have been bolstered by capital injections and asset sales.

He thinks they can now withstand a 200 basis point increase in yields (so from, say, 4% to 6%).

LDI managers were previously equipped for a 100 basis point rise in yields, which did not account for the scale of the move following the mini-budget.

Updated

The Bank of England has decided to press on with its bond-sale (quantitative tightening) programme, because it could have been disruptive to have delayed the process, executive director for markets Andrew Hauser told MPs.

Hauser explained that the Bank had spent considerable time briefing the markets about how the unwinding of QE would take place.

So having done that, the Bank had received a ‘big steer’ from market participants that it would be disruptive to not make a start to its plan to cut bond holdings by £80bn.

Hauser also suggests it could take the best part of five or 10 years to unwind QE.

Last night,the Bank announced QT would begin on 1 November, with the Bank cutting its holdings of short and medium-term bonds (while holding onto long-dated gilts, where volatility hurt pension funds).

Hauser explains that investors had asked for short-dated gilts to be sold off, to address a lack of liquidity at that part of the curve.

“On balance, our announcement has been well-received,” Hauser adds.

Mini-budget caused 'full-scale liquidation event' for pension funds

Pension funds were on the phone shouting to the Bank of England within two working days of the mini-budget as they battled against a ‘full scale liquidation event’, MPs have heard.

Andrew Hauser, the Bank’s Executive Director for Markets, tells the Treasury committee that the situation moved fast, and that investment managers reacted with growing alarm.

This was a situation that went from ‘we’re ringing you to let you know’ to shouting on the phone to us, within two days.

On the Friday of the mini-budget, funds were telling the Bank it would be a tricky day, but probably ok.

[Those pension funds had used liability-driven investing (LDI) strategies to lower their risk, and faced sudden cash calls on derivative contracts when gilt prices fell]

By Monday, the tone was more worried, and by Monday evening Hauser was in back-to-back sales with LDI firms who would be up that night listing the gilt sales they’d be conducting the next morning.

Hauser explains:

This was a full-scale liqudation event.

That non-linearity, from ‘this is more or less manageable’ to ‘this is completely out of control’, happened over the weekend and into Monday and Tuesday, Hauser explains.

Updated

Cunliffe: if market lose confidence, cost of borrowing goes up

Labour MP Rushanara Ali asks whether the Bank could have warned the government how the markets would have reacted to the £45bn of unfunded tax cuts in the mini-budget, had they known in time..

Deputy governor Jon Cunliffe explains you can’t entirely predict a market reaction.

But the Bank would have known there would be a rising curve of higher bond yields, if investors weren’t convinced by the plan.

Cunliffe explains:

If it’s unfunded – and we didn’t know to what extent it was funded or funded, and there was a growth plan that was intended to fund it through higher growth.

But if the markets lose confidence in the fiscal credibiltiy, they will just increase the cost of borrowing.

And one would have made that point.

Cunliffe adds it was hard to predict just how fast the reaction would have been. Kwasi Kwarteng’s comments that more tax cuts were coming, on the Sunday after the mini-budget, added to the market reaction (the pound hit a record low the following morning).

Q: So, is the Bank expecting to be briefed ahead of the medium-term fiscal plan on the 31 October?

Cunliffe says he’s expect this will happen, especially as there will be an OBR forecast published that day.

He reminds MPs that the Bank is due to set interest rates on 3rd November, so it will be very helpful to see the OBR’s scoring of the measures which chancellor Jeremy Hunt announces.

Cunliffe: Bank wasn't fully briefed on mini-budget

Bank of England deputy governor Sir Jon Cunliffe has told MPs that the Bank was not fully briefed about the contents of the mini-budget which spooked the markets so drastically last month.

Cunliffe explained to the Treasury Committee that the Bank is usually briefed confidentially by the Treasury ahead of a budget, so it knows what public spending announcements may affect monetary policy.

This time, the Bank didn’t get the normal briefing it would get for a budget (although officials did discuss measures they thought would be in the fiscal event).

Cunliffe explains:

When they [The treasury] brief us normally on the budget, we see the OBR costings. And that’s what we take into account in monetary policy and the like. but there were no OBR costings here.

It was a different sort of event, if I can put it that way, in many respects.

[‘Different’ is an understatement, both in the turmoil it caused, and the way it has been abandoned since].

Cunliffe is also asked if the Bank would have raised concerns, had it known what Kwasi Kwarteng was going to announce.

He explains that if the government had asked what the market reaction would be, the Bank would have interacted. However, it’s not up to the Bank to advise on fiscal policy.

Cunliffe also explained to MPs that the slump in UK bonds after the mini-budget was clearly caused by domestic factors.

It’s fair to say there had been a general move of higher interest rates internationally. But while that was the backdrop, there is clearly a UK component to what happened after 23 September.

UK, US and eurozone long-dated bond yields
UK, US and eurozone long-dated bond yields Photograph: Bank of England

Q: Are you worried that this shock came from our Treasury?

Cunliffe explains that officials advise ministers, but ministers make policy, and officials carry it out.

Inflation in the eurozone came very close to hitting double-digits in September.

Consumer prices across the single currency bloc rose by 9.9% over the year, up from 9.1% in August, statistics body Eurostat said.

It’s the highest inflation rate on record, although it has been adjusted down from the ‘flash’ reading of 10% at the end of the month.

ING say it’s far too early to call ‘peak inflation’ in the eurozone:

The one bright spot was goods inflation, which fell on a seasonally-adjusted monthly basis from 0.8% to 0.3%. Other than that, jumps in services and food inflation stand out.

Energy inflation continues to be too high as well, so the broad conclusion is that inflation remains far too high across all broad categories.

Looking somewhat deeper under the hood, we see that the jump in September was mainly driven by the end of the German €9 ticket for public transport as most other services saw stable price growth compared to last month.

In the energy sector, President Joe Biden is to announce the release of 15 million barrels of oil from the U.S. strategic reserve today, as the US responds to recent production cuts announced by Opec+.

Biden is expected to say more drawdowns are possible this winter, as his administration tries to cool gasoline prices and get on top of inflation ahead of next month’s midterm elections.

Stock markets are more subdued today, after a couple of strong days.

In London, the FTSE 100 index has dipped by 6 points, pulled down by banks (threatened with higher taxes) and housebuilders.

The more domestically-focused FTSE 250 index has lost 1.5%, with pub companies in the fallers.

Comparison site MoneySupermarket has dropped 13%, after Amazon announced its entry into the UK insurance market in an attempt to challenge the big four price comparison sites.

Wall Street has opened a little lower too:

Updated

On Wall Street, consumer goods giant Procter & Gamble has beaten estimates for quarterly sales and profit after hiking its prices.

P&G lifted its prices by 9% in the quarter, which meant organic revenues grew by 7% in the last quarter, even though volumes fell 3%.

But the firm, which makes Head & Shoulders shampo, Tide detergent and Pampers nappies, also warned that the strong dollar will hit its net earnings (as overseas sales are worth less).

Net sales are expected to fall by 1%-3% this year, down from a previous forecast for flat to 2 per cent growth.

Although Liz Truss insisted she was committed to pensions rising in line with inflation, she didn’t give the same pledge on welfare benefits.

Asked during PMQs if the same reassurance could be given for welfare benefit payments, Truss said the country had helped the poorest by providing energy subsidies and that it would always help the most vulnerable.

Asked about the country’s foreign aid budget, Truss said more details would be set out in due course.

Andrew Sparrow’s Politics Live blog has full details:

Updated

Bank shares slide as Jeremy Hunt lines up raid on profits

In the City, shares in some banking groups have dropped following a report that chancellor Jeremy Hunt was preparing to raid their profits to help fill the UK’s fiscal black hole.

Our banking correspondent Kalyeena Makortoff reports:

UK banks are steeling themselves for a windfall tax by stealth as the new chancellor, Jeremy Hunt, tries to plug a £40bn hole in the public finances.

City lobbyists are concerned that banks will not be compensated for Hunt’s U-turn on corporation tax, which will now mean the levy rises from 19% to 25% next year.

The former chancellor Rishi Sunak had promised last year to cut a sector-specific tax known as the banking surcharge from 8% to 3% to make up for the increase. However, Hunt has not made any commitment to do so, despite fears that banks would now have to prepare for a headline tax rate of 33%, rather than 28% as previously promised.

Smaller lenders including the Co-operative Bank will still benefit from a higher threshold, with the chancellor promising the surcharge will only apply to lenders earning at least £100m, rather than £25m.

A decision to maintain the surcharge at current levels could help the government raise more cash to plug the hole in public finances. A Treasury source rejected the suggestion that the move could be seen as a windfall tax by stealth, but said Hunt would confirm his position on the surcharge when he gives his fiscal update on 31 October.

Lloyds Banking Group have fallen 4%, with NatWest down 2.7% and Barclays losing 1.8%.

Here’s a breakdown of the major food price increases which consumers suffered in the shops:

Inflation likely to surge higher in October

Economists are warning that consumer prices will keep accelerating this month, as the latest rise in energy costs intensify the cost of living crisis.

Under the government’s Energy Price Guarantee, household bills rose by an average £2,500 per year, not the £3,549 set under Ofgem’s energy price cap.

Modupe Adegbembo, G7 Economist at AXA Investment Managers, predicts UK inflation will rise to a new, double-digit 40-year high.

Inflation is set to jump higher in October’s print on the rise in energy prices this month to around 11% – likely a near term peak.

The Chancellor’s announcement that the universal cap will now last for just six months compared to two years prior could see inflation higher in 2023.

Luke Bartholomew, senior economist at abrdn, says the inflation outlook is concerning.

Inflation is set to rise further rise in October to around 10.5% following the increase in energy prices (compared to around 13% which is where inflation would have been heading in absence of the government’s energy price cap).

Looking slightly further forward, the outlook for inflation is even more concerning. First, today’s inflation report revealed very strong underlying inflation pressure. Core inflation rose from 6.3% to 6.5%, while core services inflation, which is closely tied to domestic macro imbalances, rose from 5.9% to 6.1%. Second, the new Chancellor’s announcement that the current energy guarantee scheme will end in April will likely put upward pressure on headline inflation. Under current wholesale gas prices, the Ofgem cap would increase from £2500 to around £4000 next year.

Paul Dales of Capital Economics is concerned by the rise in core inflation to 6.5%, driven by rising cost for clothing and footwear (from 7.6% to 8.5%), furniture and furnishings inflation (from 10.1% to 10.7%) and hotels andrestaurants (from 8.7% to 9.7%).

But today’s release highlights the danger that underlying inflation remains strong even as the economy weakens. That’s why we are sticking with our forecast that interest rates will rise to a peak of 5.00% in the first half of next year.

Here’s our full breakdown of the price rises that drove inflation back to a 40-year high last month:

Soaring food prices are dreadful news for struggling families, but they can be profitable for food producers.

Take Swiss multinational Nestlé. It posted its strongest nine-month sales growth in 14 years this morning, after lifting its prices without losing many customers.

My colleague Mark Sweney explains:

Nestlé has reported its strongest sales growth in 14 years, with products including KitKat bars, bottles of Perrier and pet food flying off the shelves, after it passed on a hefty 7.5% price increase to consumers.

The world’s largest consumer goods company, the owner of household brands including Nescafé, Purina, Cheerios, Nespresso, Maggi and Quality Street, reported organic sales growth of 8.5% to 69.1bn Swiss francs (£61bn) in the first nine months of the year.

It is the Swiss-headquartered company’s highest rate of organic growth – a measure that strips out currency fluctuations and the impact of newly acquired companies – since 2008.

Truss: completely committed to pensions triple lock

Over in parliment, Liz Truss has told MPs that she remains committed to raising state pensions in line with inflation,

Asked about speculation that the triple lock could be ditched at Prime Minister’s Questions, Truss replies:

“We have been clear in our manifesto that we will maintain the triple lock, and I am completely committed to it, so is the chancellor.

Just yesterday, though, Truss’s spokesperson said the PM wasn’t making any commitments on government spending.

As explained earlier, pensioners would get a 10.1% increase if today’s inflation rate is used, but 5.5% if pensions rose in line with earnings.

Updated

Rise in core inflation will worry Bank of England

Core UK inflation, which stripe out volatile factors such as food, energy, alcohol & tobacco, jumped to a 30-year high of 6.5% in September.

That shows that underlying inflationary pressures are acceleratimg, which will concern the Bank of England.

Investec economist, Sandra Horsfield, explains:

To the extent that core inflation is more directly under the control of central banks, this is a concerning signal for the MPC, underpinning the case for further tightening…..

Altogether, there is little in these numbers to give the MPC comfort that price pressures are about to be brought under control and that the risks of a wage-price spiral have receded.

But, Jeremy Hunt’s new, restrictive fiscal stance will diminish longer-term upward price pressures (although ending the energy price freeze in April 2023 leaves household energy prices higher over the subsequent 6-18 months.)

Therefore, a sizeable increase in rates in November (most likely by 75bps) looks plausible for now.

But the peak in policy rates could well be noticeably lower than the 5% we had pencilled in prior to the about-turn in the planned fiscal stance under new Chancellor Jeremy Hunt.

The Food and Drink Federation Chief Executive Karen Betts says food manufacturers have been forced to pass on rising costs, such as more expensive ingredients and higher energy bills, to consumers:

“Today marks a grim milestone with food and drink price inflation hitting 14.6% in September, a level not seen since the 1980s. Food and drink manufacturers continue to do everything they can to keep product prices down but huge rises in ingredient, raw material, energy and other costs mean they have no choice but to pass some price rises on.

Betts also warns that the chaos following the mini-budget has hurt businesses:

“Recent economic turbulence in the UK has made a difficult operating environment for businesses in our sector worse.

Companies urgently need a stable economic outlook and a coherent policy framework to enable them to make investment and other critical decisions that are central to their businesses and to the prosperity of their local communities.”

Updated

Uk short and medium-term borrowing costs are rising this morning, after the Bank of England confirmed it will start unwinding its money-printing programme next month.

The BoE announced last night it will press on with its plan to sell some of its UK bonds (which it bought through its quantitative easing programme), from the start of November.

This quantitative tightening had been delayed once, following the turmoil after the mini-budget, and there were concerns that the Bank’s sales could destabilise markets.

And perhaps with that in mind, the Bank will not try to sell its holdings of long-dated gilts (where tumbling prices pulled pensions towards a pensions ‘doom-loop’ after the mini-budget).

Instead, it will focus on selling short- and medium-term debt, including gilts with a residual maturity of up to 20 years.

This morning, the yield, or interest rate, on two-year bonds has risen to 3.62%, from 3.54% last night, while 10-year gilt yields are up a similar amount to 3.98%. Yields rise when prices fall.

But 30-year gilts are strengthening, pulling down yields to 4.17% from 4.27%, which is the lowest in almost two weeks.

Even if the government does lift benefits by September’s inflation figure next April, benefits would still be 6% below their pre-pandemic levels, in real terms, according to the Institute for Fiscal Studies.

Heidi Karjalainen, a Research Economist at IFS explains:

“The inflation figures out today mean that – if the government uprates benefits with inflation, as is typical – most working-age benefits will go up by 10.1% in April.

But this would still leave their real value on course to be 6% below their pre-pandemic levels, equivalent to almost £500 per year for the average out-of-work claimant – and even this assumes that benefit recipients will continue to receive equivalent support for rising energy bills as they do under the (now shorter-lived) Energy Price Guarantee.

This is a consequence of below-inflation increases in April this year, when benefit rates failed to keep pace with an accelerating rate of inflation.

The situation for benefit recipients’ living standards next April could be even more difficult depending on the design of the energy support package in place from next April.”

UK house price inflation slowed in August

House price inflation slowed in August but remained solidly in double-digit levels.

The Office for National Statistics reports that UK average house prices increased by 13.6% over the year to August, down from 16.0% in July.

The average UK house price was £296,000 in August 2022, which is £36,000 higher than this time last year.

The ONS adds:

Average house prices increased over the year to £316,000 (14.3%) in England, to £220,000 in Wales (14.6%), to £195,000 in Scotland (9.7%) and to £169,000 in Northern Ireland (9.6%).

Rents kept climbing too; up 3.6% in the 12 months to September, from 3.4% in August.

Larry Elliott: UK inflation jump calls for rise in pensions and benefits to match

For millions of people – pensioners and those eligible for state benefits – last month’s double-digit inflation figure is the one that really matters, our economics editor Larry Elliott writes:

Each year, the government uses the September increase in the cost of living as measured by the consumer prices index to calculate by how much pensions and benefits will rise the following April.

If it sticks to the standard formula, payments will go up by the full 10.1%, which translates into a rise of just over £1,000 a year for someone on a full state pension.

Tellingly, the government has refused to commit to a full uprating this year and is mulling over whether to increase pensions and benefits in line with the increase in earnings instead. These are rising at an annual rate of 6%.

Choosing the cheaper option would save the Treasury billions of pounds and be in keeping with the austerity message Jeremy Hunt has been giving nonstop since he became chancellor five days ago.

It would, though, cause real hardship for some of the least well-off people in the UK and would be certain to trigger a political backlash. Conservative MPs would be particularly aware of the risks of alienating pensioners, given that they overwhelmingly voted for Boris Johnson in the 2019 election.

What’s more, a breakdown of the latest inflation figures from the Office for National Statistics provides evidence that the highest annual price rises in 40 years is having a disproportionate increase on the poorest. Poorer households spend more of their budget on food than richer households, and food prices have risen by more than 14% in the past year.

Full story: UK inflation rises to 10.1% on back of soaring food prices

Inflation in the UK has risen above 10% for the second time this year as households come under pressure from the sharpest annual rise in food prices for more than 40 years amid the cost of living crisis.

The Office for National Statistics (ONS) said the consumer prices index rose to 10.1% in September, returning to double digits after a slight dip to 9.9% in August. The figure was last higher in 1982. City economists had forecast a slightly smaller rise to 10%.

Soaring prices for food and drink were the biggest driver behind the latest cost of living increase, with an annual rise of almost 15%, the fastest annual jump since April 1980, as the price of bread and cereals, meat, milk, cheese and eggs shot up.

The September inflation figure is crucial as it is the one used to uprate pensions and benefits for the following April. However, there have been suggestions that the new chancellor, Jeremy Hunt, will break the Conservative party manifesto commitment to the triple lock – the guarantee that state pensions rise each year in line with inflation, average wage growth, or 2.5%, whichever is highest.

Charities warned that failure to deliver an inflation-matching benefits increase, after the biggest real-terms cut for 50 years earlier this year, would drive up poverty.

Rebecca McDonald, the chief economist at the poverty charity the Joseph Rowntree Foundation, said:

“It is morally indefensible that the government should still be considering leaving people with even less ability to pay for what they need.”

Here’s the full story:

Pensioners 'face disaster' if triple lock abandoned

If the government sticks to the triple-lock pledge, then the new full State Pension would rise by a record 10.1% to £203.85 a week from April 2023, from £185.15 currently.

That’s an increase of around £972 per year.

For those who reached state pension age before April 2016, the basic State Pension could increase from £141.85 to £156.15.

But if ministers abandon that promise, and uprate pensions by average earnings not inflation, pensioners would only receive a 5.5% rise.

That would take the full State Pension up to £195.35 a week, and the basic state pension to £149.65.

So someone on the full State Pension would miss out on around £442 next year.

As it is almost impossible to predict the direction of travel of government policy, it’s very difficult for pensioners to plan with any kind of certainty, says David Denton, technical consultant at Quilter Cheviot:

Former Chancellor, Rishi Sunak, had backed keeping the triple lock in place and during her leadership bid, Liz Truss also gave the impression that the State Pension triple lock will remain in place.

The policy has now been thrown up in air again after Jeremy Hunt appeared indecisive on the matter.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, says losing the triple lock would be a bitter blow to the many pensioners who rely on the state pension.

Many of them will be have been under severe financial pressure in recent months as inflation pushed their essential bills ever skyward. Their difficulties will have been compounded by the triple lock’s suspension last year with the 3.1% increase given being no match for the events that followed.

However, faced with a black hole in Britain’s finances Jeremy Hunt is looking at making savings wherever possible and suspending the triple lock could save him a huge chunk of change -it will however be a disaster for pensioners already facing difficult times.”

Updated

Personal inflation calculator: find out how UK price rises affect you

Although inflation is officially 10.1%. you could have a different, personal inflation rate depending on what you typically buy each month.

This is because some items have gone up by more in price than others – the ONS uses a basked of goods to assess the rising cost of living.

We’ve built a calculator that lets you find your personal inflation rate, here:

TUC: Truss and Hunt must end anxiety of millions over universal credit, pensions and benefits

TUC general secretary Frances O’Grady is urging Liz Truss and Jeremy Hunt to guarantee that benefits will rise in line with September’s inflation reading:

“With inflation still running high, the government must make sure that every family can afford to put food on the table and keep warm this winter.

“But millions of people are already skipping meals and turning off the heating. Yet the Prime Minister and Chancellor still refuse to confirm that universal credit, pensions and benefits will keep up with inflation.

“It is no wonder so many working people are seeking higher wages and taking action to win fair pay deals.”

Updated

How food inflation has soared

Food prices jumped 14.8% over the last year, driven by staple goods such as bread and cereals (up 14.5% over the last year), pasta and couscous (+22.7%), meat (+15.3%), low-fat milk (+42.1%), butter (+28%) and eggs (+22.3%).

Fruit prices were up 8.8%, while potatoes cost 19.9% more,

Crisps rose 11.8%, while jams, marmalades and honey cost 28.1%.

Updated

Here’s a breakdown of the factors that drove UK inflation back to a 40-year high of 10.1% in September:

  • Food and non-alcoholic beverages: 14.5% – up from 13.1% a month earlier

  • Alcoholic beverages and tobacco: 5.5%

  • Clothing and footwear: 8.5%

  • Housing, water, electricity, gas and other fuels: 20.2%

  • Furniture, household equipment and maintenance: 10.7%

  • Health: 3.5%

  • Transport: 10.6%

  • Communication: 2.4%

  • Recreation and culture: 5.2%

  • Education: 4.3%

  • Restaurants and hotels: 9.7% – up from 8.7% a month earlier

  • Miscellaneous goods and services: 5.0%

Resolution: crucial to lift benefits in line with inflation

It’s crucial that the government uses September’s inflation figure to update benefits next April, rather than pulling another u-turn, the Resolution Foundation says.

Resolution says a 10.1% increase to benefits next April would help 10 million working-age families through the deepening cost-of-living crisis.

September’s inflation data is usually used to set the next year’s benefits increase – and Jack Leslie, Senior Economist at the Resolution Foundation, says households need the support:

“Surging food prices have driven a return to double-digit inflation across Britain and high inflation looks set to stay with us for some time too, with accelerating services producer price inflation and the early end of the Energy Price Guarantee likely to put upward pressure on consumer prices next year.

“This bleak outlook means that family incomes will continue to fall sharply again next year, especially as support with energy bills is withdrawn.

“That is the context of debates within Government about whether previous commitments to uprate benefits or pensions in line with prices should be the next U-turn to be announced. While the significant Treasury savings may look tempting in the context of its attempts to fill its fiscal hole, the cost to ten million working age families and almost every pensioner would be huge amid the deepest cost of living crisis for half a century.”

The RPI measure of inflation has risen to its highest level in four decades too.

The Retail Price Index jumped to 12.6% in the year to September, up from 12.3% in August.

Although the RPI is no longer a ‘national statistic’, it is still used in wage bargaining, and to uprate some maintenance payments and housing rents.

Unite general secretary Sharon Graham says:

“With RPI now up to 12.6%, workers and communities must not pay for a crisis they did not create.

“We will not stand by and watch the country take a pay cut while corporations profit and the government pours petrol on the fire.”

UK businesses are still facing historically high cost increases, although falling crude oil prices have helped ease inflationary pressures.

The cost of inputs, such as raw materials, rose by 20.0% in the year to September, down from 20.9% a month ago.

The costs charged ‘at the factory gate’ also eased – output inflation rose by 15.9% over the last year, down from 16.4% in the year to August.

Shadow chancellor Rachel Reeves says:

“Inflation figures this morning will bring more anxiety to families worried about the Tories’ lack of grip on an economic crisis of their own making.

“It’s clear that the damage has been done. This is a Tory crisis, made in Downing Street and paid for by working people.

“The facts speak for themselves: mortgage costs are soaring, borrowing costs are up, living standards down and we are forecast to have the lowest growth in the G7 over the next two years.

“What we need now is to restore financial credibility and a serious plan for growth that puts working people first. That is what Labour will bring.”

Hunt: we'll prioritise "help for most vulnerable"

Chancellor Jeremy Hunt has said the government will prioritise help for the most vulnerable, after inflation rose to 10.1%.

In a statement, Hunt says:

I understand that families across the country are struggling with rising prices and higher energy bills.

“This Government will prioritise help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone.

“We have acted decisively to protect households and businesses from significant rises in their energy bills this winter, with the Government’s energy price guarantee holding down peak inflation.”

However, there’s no mention of whether the chancellor will raise benefits in line with this inflation reading.

Also, Hunt has just limited the goverment’s energy price freeze to just six months, from two years. That means average annual energy bills could rise to more than £4,000 from April, adding to inflation next year.

Updated

After soaring earlier this year, petrol and diesel prices dropped in September.

Petrol prices fell by 8.7 pence per litre on average on the month to 166.5p, while diesel prices fell by 5.0p to 181.6p per litre.

That’s still around 25% higher than a year ago, but a slowdown on August when fuel inflation was 32.1%.

UK fuel inflation
UK fuel inflation Photograph: ONS

However, motoring groups have reported that fuel prices are climbing again this month:

Here’s ONS director of economic statistics Darren Morgan explaining the rise in inflation:

“After last month’s small fall, headline inflation returned to its high seen earlier in the summer.

The rise was driven by further increases across food, which saw its largest annual rise in over 40 years, while hotel prices also increased after falling this time last year.

“These rises were partially offset by continuing falls in the costs of petrol, with airline prices falling by more than usual for this time of year and second-hand car prices also rising less steeply than the large increases seen last year.

Inflation: the key charts

This chart shows how consumer price inflation has surged dramatically over the last 18 months – from just 0.7% in March 2021.

UK inflation
UK inflation rates Photograph: ONS

Electricity, gas and other fuels, food and non-alcoholic beverages, and transport, have been the biggest factors pushing up inflation:

UK inflation
UK inflation Photograph: ONS

Food inflation hits 42-year high

Food and drink price inflation has hit its highest level since April 1980.

Food and non-alcoholic beverage prices rose by 14.5% over the last year, up from 13.1% in August.

Food inflation has now risen for the last 14 months, up from negative 0.6% in July 2021.

UK food inflation
UK food inflation Photograph: ONS

The largest upward effects came from bread and cereals, meat products, and milk, cheese and eggs in September.

Updated

Inflation was driven up by the surge in gas and electricity bills over the last year, and the jump in food and drink costs.

The ONS says:

The largest contribution to the annual rate in September 2022 is from housing and household services. The second largest contribution came from food and non-alcoholic beverages, which has overtaken that from transport.

UK inflation jumps back to 10.1%

Newsflash: Inflation in the UK has risen to 10.1% as the cost of living crisis continued to hit households.

That matches July’s 40-year high.

Updated

Here’s Paul Kelso of Sky News on the implications of today’s inflation report:

Updated

One in 7 Britons skipping meals in cost of living crisis, says TUC

One in seven people in the UK are skipping meals or going without food, according to new polling data released by the Trades Union Congress (TUC).

The data from an MRP poll by Opinium reveals that more than half of British people are cutting back on heating, hot water and electricity in the cost of living squeeze, and one in 12 have missed the payment of a household bill.

The polling found that one in seven people are skipping meals but that rises to one in five people in nearly 50 constituencies across the country.

It reveals that Birmingham Ladywood is the constituency with the highest number of people going without food, at 29%, followed by Dundee West at 27%, Glasgow at 24% and Rhondda at 24%.

Here’s the full story:

Introduction: UK inflation expected to remain painfully high

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The scale of Britain’s cost of living crisis will be exposed again today when September’s inflation report is released, at 7am.

Economists predict that consumer prices rose by a painful 10% over the last year. That would push inflation back into double-digit levels, having dipped slightly to 9.9% in August.

Soaring food prices and the energy crisis have been squeezing household budgets all year, with inflation running sharply ahead of wage growth. Back in July, inflation hit 10.1% for the first time in 40 years.

Michael Hewson of CMC Markets explains:

UK inflation got a bit of a respite in August falling back to 9.9% from 10.1% in July, with the fall in petrol prices helping to pull the headline number back below double figures.

While welcome news on a headline level, food prices are still acting as a tailwind rising by 13.1% and up from 12.7% in July, with the price of staples like milk, eggs, and butter all up by over 20%. These increases are expected to filter into September with a move back above 10%.

September inflation figure has implications for pensioners and those on benefits, as it’s used in the Work and Pensions Secretary’s annual benefits uprating review.

If the government decides to uprate benefits by inflation, this is the percentage they will be increased by, and will come into effect from next April.

But yesterday, Liz Truss’s official spokesperson refused four times to commit to keeping the state pension triple lock, under which pensions would rise by the highest of average earnings, CPI inflation based on September’s rate, or 2.5%.

Today’s inflation rate will also be a big factor in how sharply the Bank of England raises interest rates next month. The money markets currently suggest the Bank is likely to lift base rate by a full percentage point, from 2.25% to 3.25%.

Last night, the Bank confirmed it will push ahead with selling £80bn of UK government bonds from the start of next month, a day later than planned, despite fears over choppy conditions in financial markets after the mini-budget.

The agenda

  • 7am BST: UK consumer inflation report for September

  • 7am BST: UK producer price index of factory inflation for September

  • 9.30am BST: UK house price index for August

  • 10am BST: Eurozone inflation report for September

  • Noon BST: US weekly mortgage applications

  • 3pm BST: Treasury Committee questions Bank of England deputy governor Sir Jon Cunliffe

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