Inflation rate in the UK: How fast are prices going up?

The UK had a 2.3% increase in prices in the 12 months ending in October, bringing inflation back beyond the Bank of England’s target. The Bank adjusts interest rates in an effort to maintain 2% inflation.  Inflation, a measure of the growing cost of living, rose to 2.3% in October.

The rate at which prices are rising is not as high as it has been recently. The rate of inflation peaked two years ago at 11.1%. In November, it lowered rates to 4.75%, the second rate drop in 2024.

Inflation: what is it?

Price increases over time are referred to as inflation. Usually, inflation is measured broadly, such as the rise in prices generally or the rise in the cost of living in a country. For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.

How is the rate of inflation in the UK calculated?

The Office for National Statistics (ONS) keeps track of the costs of hundreds of commonplace commodities, such as food and fuel. To determine inflation, the ONS tracks changes in prices over the preceding 12 months. The Consumer Prices Index (CPI), which is external, is the primary indicator of inflation.

From 1.7% in the 12 months to September, the CPI increased by 2.3% in the year to October 2024. The highest rate over six months occurs in October.

Why do prices continue to rise?

Since it reached 11.1% in October 2022—the highest level in 40 years—inflation has drastically decreased. Due to increased demand for gas and oil during the COVID-19 epidemic, energy costs spiked once more in 2022, causing inflation to skyrocket.

How have interest rates in the UK changed?

As was largely anticipated, the Bank of England lowered interest rates to 4.75% in November 2024. It came after the first dip in four years, which saw it fall from 5.25% to 5% in August. Andrew Bailey, the governor of the Bank, stated in October that if inflation stayed under control, the Bank may be a “bit more aggressive” in lowering borrowing prices. 

However, following the Budget at the end of that month, the Bank forecast that the policies it included, such as raising employers’ National Insurance Contributions, would somewhat reduce inflation as companies raise prices to cover their higher expenses.

What is going on with interest rates and inflation in the US and Europe?

Higher inflation and interest rates during the previous few years have also decreased in many other nations. Inflation for euro-using nations decreased from 2.2% in August and 2.6% in July to 1.8% in September. Because of rising housing and food prices, US inflation increased from 2.4% in September to 2.6% in October. The US central bank cut its key lending rate by 0.5 percentage points to between 4.75% and 5% at its September meeting, marking the first rate cut in four years.

Four things we may learn from the most recent inflation data

The rate of inflation peaked two years ago at 11.1%. Inflation, a measure of the growing cost of living, rose to 2.3% in October. However, the situation’s effect on people’s money, both now and in the future, is causing alarm.

These figures impact you in the following four ways: 

There is still a dilemma with the expense of living:

Food and energy price rises are the main cause of the 24% increase in goods and services costs compared to October 2020. Although excessive inflation is seen negatively, a modest level of inflation is thought to be required to stimulate economic expansion. As measured by the Consumer Prices Index (CPI), inflation has a government-set target rate of 2%.

The rate of inflation is unstable: 

As is the case with all economic statistics, one month’s data can defy a broad trend; thus, it should be compared to prior data that has been released. It’s also important to note that some of the elements causing the most recent price increase originated outside the UK. The price of energy in international markets is the main cause of rising energy expenses, which affect the bills of both homes and enterprises.

There will be more gradual interest rate reductions

Interest rates have an impact on borrowing costs. Since inflation has significantly decreased from its high, the Bank has been and continues to be expected to lower interest rates. However, the markets have updated their forecasts regarding recent developments, including the Budget and the current higher-than-expected inflation rate.

We’re still determining what will occur next

Both domestic and international forces will greatly influence how quickly prices increase, but it’s still unclear how they will work out. At home, budgetary measures like raising employers’ National Insurance premiums have raised concerns that either fewer jobs or higher prices may result from the additional expense. Other occurrences, though, might be beneficial. Although the effects of such geopolitical complexity are very difficult to predict, a quick and generally peaceful conclusion to conflicts like the war in Ukraine could settle the global economic outlook.