Chancellor of the Exchequer Jeremy Hunt will unveil this Thursday before Parliament his long-awaited Autumn budget statement, having anticipated to the UK population that “we will be asking everyone for sacrifices.”
Hunt is looking to fill the black hole of up to £60bn in public finances through a combination of tax rises and public-spending cuts, across all government departments.
And an anticipation of the hard times ahead was advanced on Wednesday when the Office for National Statistics revealed that UK inflation jumped to a 41-year high of 11.1% in October, exceeding expectations as food, transport and energy prices continued to squeeze households and businesses.
Despite the introduction of the government’s Energy Price Guarantee program, the ONS said the largest upward contributions came from electricity, gas and other fuels.
“Indicative modeled consumer price inflation estimates suggest that the CPI rate would have last been higher in October 1981, where the estimate for the annual inflation rate was 11.2%,” the ONS said.
On a monthly basis, the CPI rose 2% in October, matching the annual CPI inflation rate between July 2020 and 2021. Overall, the cost of housing and household services, which includes energy bills, rose by an all-time high of 11.7% in the 12 months to October 2022, up from 9.3% in September 2022.
“In October 2022, households are paying, on average, 88.9% more for their electricity, gas, and other fuels than they were paying a year ago,” the ONS said.
“Domestic gas prices have seen the largest increase, with prices in October 2022 being more than double the price a year earlier.”
Food and non-alcoholic beverages also contributed heavily, rising by 16.4% in the 12 months to October to notch its highest annual rate since September 1977.
The UK faces its longest recession on record, according to the Bank of England, while the government and central bank are attempting to coordinate the tightening of fiscal and monetary policy in order to rein in inflation.
The BoE raised interest rates by 75 basis points earlier this month, its largest hike in 33 years, to take the Bank Rate to 3%, but challenged the market’s pricing of future rate increases.
On Thursday all eyes will be set on whether health and defense (with UK highly involved in supporting Ukraine and preparing for a more aggressive world scenario), will be protected from the heavy cuts. Likewise stealth taxes could be a big theme of the autumn budget. These involve freezing the thresholds at which people start paying different rates of tax. Because of inflation and pay increases, this involves people paying more tax because more of their income is within a higher tax band.
Included in this fiscal drag net are income tax, national insurance, inheritance tax and the pension lifetime allowance, among other taxes.
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