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14 September 2022

Inflation may have fallen, but the cost-of-living crisis is far from over

Prices are still rising at nearly the highest rate for 40 years and far outstripping wage growth.

By Rachel Wearmouth

Inflation dipped to 9.9 per cent in August from 10.1 per cent in July. But it’s unlikely Liz Truss will be celebrating the update from the Office for National Statistics (ONS) as prices are still rising at nearly the highest rate for 40 years and far outstripping wage growth.

Has inflation peaked? The Bank of England certainly doesn’t think so. Threadneedle Street believes inflation could reach an eye-watering 13 per cent later this year and the Bank governor, Andrew Bailey, is predicted to raise interest rates again by 0.5 per cent.

A drop in fuel prices is thought to be responsible for the lower overall inflation rate, but food price inflation rose for a 13th successive month, hitting another 14-year high of 13.1 per cent in August.

But the broader issue for the government is that economists think Truss’s injection of a potential £150bn more borrowing to fund her energy bills plan could keep inflation high for longer.

The government is yet to provide any detailed costings for the energy plan, which will protect households from soaring bills from October.

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Scrutiny of the strategy remains paused as the UK is still in national mourning, with the Queen’s funeral taking place on 19 September. Downing Street says it still plans to announce a mini-Budget in September to tackle the rising cost of living.

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The Queen’s funeral will be marked with a bank holiday. Though most will be pleased to have time off to witness an important moment for Britain, there may be consequences for the economy, which is on the brink of recession.

Consumer confidence is at a 50-year low and when GDP fell by 0.6 per cent in June, ONS said it could partly be attributed to the lost economic activity caused by the Platinum Jubilee bank holiday.

The Queen will make her final departure from Buckingham Palace this afternoon. Her coffin will lie in state at Westminster Hall for four days. London is braced for huge crowds with mourners lining The Mall already this morning.

King Charles will follow the coffin on foot, joined by his sons the Prince of Wales and Duke of Sussex, as well as by Prince Andrew, Princess Anne and Prince Edward.

[See also: What’s really behind Kwasi Kwarteng’s sacking of Tom Scholar?]

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