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UK inflation rate: How quickly are prices rising? UK inflation rate: How quickly are prices rising?
(7 days later)
Prices in the UK went up by 1.7% in the 12 months to September, the lowest rate in three-and-a-half years. Prices in the UK went up by 2.3% in the 12 months to October, which means inflation is back above the Bank of England's target.
The Bank of England has a target to keep inflation at 2%, and puts interest rates up and down to try to meet it. The Bank puts interest rates up and down to try to keep inflation at 2%.
In November, it cut rates for the second time in 2024, taking them to 4.75%.In November, it cut rates for the second time in 2024, taking them to 4.75%.
What does inflation mean? What is inflation?
Inflation is the increase in the price of something over time.Inflation is the increase in the price of something over time.
For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.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 UK's inflation rate measured?How is the UK's inflation rate measured?
The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).
This virtual "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed.This virtual "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed.
The ONS monitors price changes over the previous 12 months to calculate inflation.The ONS monitors price changes over the previous 12 months to calculate inflation.
The main inflation measure is called the Consumer Prices Index (CPI), external.The main inflation measure is called the Consumer Prices Index (CPI), external.
CPI rose by 1.7% in the year to September 2024, down from 2.2% in the 12 months to August. CPI rose by 2.3% in the year to October 2024, up from 1.7% in the 12 months to September. The October figure is the highest rate for six months.
Analysis had expected inflation to drop to 1.9%, but lower airfares and petrol prices meant it fell further. This was largely as a result of increased gas and electricity prices after the energy cap went up on 1 October.
The September CPI figure of 1.7% decides how much many benefit payments will go up in April 2025. The September CPI figure of 1.7% decided how much many benefit payments will go up in April 2025.
This includes all the main disability benefits.
However, the state pension will rise by 4.1%, under an arrangement called the triple lock.However, the state pension will rise by 4.1%, under an arrangement called the triple lock.
Why September's inflation figure matters
Why are prices still rising?Why are prices still rising?
Inflation has fallen significantly since it hit 11.1% in October 2022, which was the highest rate for 40 years.Inflation has fallen significantly since it hit 11.1% in October 2022, which was the highest rate for 40 years.
However, that doesn't mean prices are falling - just that they are rising less quickly.However, that doesn't mean prices are falling - just that they are rising less quickly.
Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.
It then remained above the Bank of England's 2% target partly because of high food prices.It then remained above the Bank of England's 2% target partly because of high food prices.
Although these have now dropped back, some parts of the economy, like the services sector - which includes everything from restaurants to hairdressers - are still seeing significant price rises. Some parts of the economy, like the services sector - which includes everything from restaurants to hairdressers - are still seeing significant price rises.
Why inflation is worse for some people than others
Why does putting up interest rates help to lower inflation?Why does putting up interest rates help to lower inflation?
The Bank of England uses interest rates to try and keep inflation at the 2% target.The Bank of England uses interest rates to try and keep inflation at the 2% target.
When inflation was well above that level, it increased interest rates to 5.25%, a 16-year high.When inflation was well above that level, it increased interest rates to 5.25%, a 16-year high.
The idea is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged to save more.The idea is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged to save more.
In turn, this reduces demand for goods and slows price rises.In turn, this reduces demand for goods and slows price rises.
But it is a balancing act - increasing borrowing costs risks harming the economy.But it is a balancing act - increasing borrowing costs risks harming the economy.
For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.
Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.
What is happening to UK interest rates? What has happened to UK interest rates?
In November 2024, the Bank of England cut rates to 4.75%, in a move that had been widely expected.In November 2024, the Bank of England cut rates to 4.75%, in a move that had been widely expected.
It followed a drop from 5.25% to 5% in August, the first fall for four years.It followed a drop from 5.25% to 5% in August, the first fall for four years.
Announcing the November rate decision, the Bank of England governor Andrew Bailey indicated more cuts were to come but said it would be a "gradual fall from here". The Bank also considers other measures, external, such as "core inflation" when deciding how to change rates.
Although the headline CPI figure of 1.7% is below the 2% target, the Bank also considers other measures, external, such as "core inflation" when deciding how to change rates. Core inflation doesn't include food or energy prices because they tend to be very volatile, so can be a better indication of longer term trends. It was 3.3% in October, up from 3.2% in the year to September.
Core inflation doesn't include food or energy prices because they tend to be very volatile, so can be a better indication of longer term trends. It was 3.2% in the year to September, down from 3.6%. In October, the Bank governor Andrew Bailey said it could be a "bit more aggressive" at cutting borrowing costs, if inflation remained under control.
In its latest forecast for the global economy, the International Monetary Fund (IMF) warned that persistent inflation in countries including the UK and US might mean interest rates have to stay "higher for even longer". However, after the Budget at the end of that month, the Bank predicted that the measures it contained - such as an increase in National Insurance Contributions paid by employers - will lift inflation slightly as businesses pass on their increased costs through higher prices.
In October, Mr Bailey said the Bank of England could be a "bit more aggressive" at cutting borrowing costs, if inflation remained under control. Announcing the November rate decision, Mr Bailey indicated any further cuts were likely to be gradual, adding: "We need to make sure inflation stays close to target, so we can't cut interest rates too quickly or by too much."
However, after the Budget at the end of that month, the Bank predicted that its measures - such as an increase in National Insurance Contributions paid by employers - will lift inflation slightly as businesses pass on their increased costs through higher prices.
At November's rate cut Mr Bailey cautioned: "We need to make sure inflation stays close to target, so we can't cut interest rates too quickly or by too much."
Will UK interest rate cut make my mortgage cheaper?Will UK interest rate cut make my mortgage cheaper?
How the Budget will affect you and your moneyHow the Budget will affect you and your money
Are wages keeping up with inflation?Are wages keeping up with inflation?
The latest official quarterly figures, external show that pay grew at its slowest rate for more than two years between July and September.The latest official quarterly figures, external show that pay grew at its slowest rate for more than two years between July and September.
Average annual growth in pay (excluding bonuses) during the three-month period was 4.8%, down from 4.9% between June and August.Average annual growth in pay (excluding bonuses) during the three-month period was 4.8%, down from 4.9% between June and August.
Despite the slowdown, wages are still rising faster than inflation.Despite the slowdown, wages are still rising faster than inflation.
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Who are the millions of Britons not working?Who are the millions of Britons not working?
What is happening to inflation and interest rates in Europe and the US?What is happening to inflation and interest rates in Europe and the US?
Many other countries have also seen the past few years' higher inflation and interest rates fall back.Many other countries have also seen the past few years' higher inflation and interest rates fall back.
The inflation rate for countries using the euro was 1.8% in September, down from 2.2% in August and 2.6% in July.The inflation rate for countries using the euro was 1.8% in September, down from 2.2% in August and 2.6% in July.
In June, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 3.75%, the first fall in five years.In June, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 3.75%, the first fall in five years.
It cut rates again to 3.5% in September.It cut rates again to 3.5% in September.
US inflation was 2.6% in October, up from to 2.4% in September as a result of higher housing and food costs.US inflation was 2.6% in October, up from to 2.4% in September as a result of higher housing and food costs.
At its September meeting, the US central bank lowered rates for the first time in four years, cutting its key lending rate by 0.5 percentage points to between 4.75% and 5%.At its September meeting, the US central bank lowered rates for the first time in four years, cutting its key lending rate by 0.5 percentage points to between 4.75% and 5%.
The cut was larger than many analysts had predicted.The cut was larger than many analysts had predicted.
And in November, the Federal Reserve announced a further cut, taking the key rate to between 4.5% and 4.75%. In November, the Federal Reserve announced a further cut, taking the key rate to between 4.5% and 4.75%.