Consumer prices in United Kingdom rose 11.1% year-on-year in October, clearly rebounding from a 10.1% rise in September. By inflation the unexpected slowdown in growth, already at its highest in four decades, is a cause for concern, although the rebound is largely the result of very high prices. energy in October. Perhaps, with luck, the October record will also be the peak of inflation in the UK. We expect inflation to decline from 9% overall in 2022 to 5.3% in 2023 and 1.6% in 2024 before picking up again. The three main drivers that drove inflation to impressive levels are beginning to wane. First, the robust growth in demand through 2021 and early 2022 is now giving way to a sharp correction in consumer spending and housing activity. Secondly, bottlenecks in the global food supply and transportation system associated with pandemic restrictions are quickly being eliminated. Thirdly, world energy prices have fallen after serious efforts by European economies to create sufficient stocks for the winter. Once the main impact of high energy prices begins to wane next year, UK inflation is likely to ease rapidly as the recession eases underlying price pressures.

Today Chancellor of the Exchequer Jeremy Hunt will present the government’s new five-year budget plan. He pointed out that a GDP contraction of around 2% is inevitable due to a combination of higher taxes and lower spending growth. Tighter fiscal policy will dampen demand and dampen underlying inflationary pressures. However, the energy price ceiling is expected to expire next April. It will likely be replaced by more targeted support to help the less wealthy get through the cost-of-living crisis.

After 40 years of easing price pressures in the Western world, inflation has rebounded sharply. Before the pandemic, we argued that it would increase due to a combination of structural factors. Once the temporary increase in war-related inflation subsides, these forces will shape its long-term trends, which include labor shortages, rising costs of protecting the planet, and the abandonment of fossil fuels.

* Mr. Calum Pickering is an economist at Berenberg Bank.