Soaring inflation spells more trouble for Osborne

The UK now has the highest inflation of any EU country except Estonia.

The latest inflation figures are shocking. The Consumer Price Index rose 0.7 per cent last month to 5.2 per cent (the target rate, of course, is 2 per cent), the highest level since September 2008, while the Retail Price Index, the traditional measure of inflation, rose to 5.6 per cent, up from 5.2 per cent in August and the highest figure since June 1991. The UK now has the highest inflation of any EU country except Estonia. And all this before the Bank of England has injected £75bn worth of quantitative easing (QE), with inevitably inflationary consequences. It's nothing compared to the 1970s - when inflation rose above 25 per cent - but it explains why almost everyone is feeling the pinch.

The causes are wearily familiar: the depreciation of sterling, the VAT rise and rising energy prices (voters' number one concern, according to opinion polls). Average gas and electricity bills rose 7.5 per cent between August and September. But over the last year, excluding bonus payments, wages have risen by just 1.8 per cent, meaning millions are suffering an effective pay cut.

So, to quote Lenin, what is to be done? There is a (correct) bipartisan consensus that lack of growth, not inflation, is Britain's biggest problem. Hence George Osborne's support for a second round of QE (described by him in 2009 as "the last resort of desperate governments") and the government's tacit agreement with the Bank of England that interest rates will remain at record lows. A premature rise in the base rate (currently 0.5 per cent) would strangle growth. Similarly, Ed Balls and Ed Miliband continue to believe that sustained monetary stimulus is essential for the health of the economy.

In addition, all sides both hope and expect that inflation will come down next year as temporary factors such as the VAT rise and the surge in oil prices are discounted. Indeed, the Monetary Policy Committee's biggest fear is not inflation but deflation.

But none of this will prevent Labour delivering some potent attack lines. Here's Rachel Reeves, the party's new shadow chief secretary to the Treasury and a former Bank of England economist:

It's now clear we have the worst of all worlds - high inflation, rising unemployment and a stagnant economy since last autumn. When Britain now has the highest inflation of any EU country except Estonia, families and pensioners feeling the squeeze want out of touch Ministers to take some responsibility and take action now ... The Bank of England has been put in an impossible position by George Osborne. It has been left to do all the work to support the economy, while spending cuts and tax rises that go too far and too fast have crushed growth and the VAT rise has fuelled inflation too.

The stark reality for Osborne is that, under his stewardship, the UK now has one of the highest rates of inflation in the EU and one of the lowest rates of growth. As low and middle earners (11 million of whom have seen no rise in their real incomes since 2003) are squeezed by rising prices, falling wages, higher taxes and lower benefits, the pressure will intensify on the Chancellor to offer some relief.

George Eaton is political editor of the New Statesman.

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New Digital Editor: Serena Kutchinsky

The New Statesman appoints Serena Kutchinsky as Digital Editor.

Serena Kutchinsky is to join the New Statesman as digital editor in September. She will lead the expansion of the New Statesman across a variety of digital platforms.

Serena has over a decade of experience working in digital media and is currently the digital editor of Newsweek Europe. Since she joined the title, traffic to the website has increased by almost 250 per cent. Previously, Serena was the digital editor of Prospect magazine and also the assistant digital editor of the Sunday Times - part of the team which launched the Sunday Times website and tablet editions.

Jason Cowley, New Statesman editor, said: “Serena joins us at a great time for the New Statesman, and, building on the excellent work of recent years, she has just the skills and experience we need to help lead the next stage of our expansion as a print-digital hybrid.”

Serena Kutchinsky said: “I am delighted to be joining the New Statesman team and to have the opportunity to drive forward its digital strategy. The website is already established as the home of free-thinking journalism online in the UK and I look forward to leading our expansion and growing the global readership of this historic title.

In June, the New Statesman website recorded record traffic figures when more than four million unique users read more than 27 million pages. The circulation of the weekly magazine is growing steadily and now stands at 33,400, the highest it has been since the early 1980s.