The rate of inflation rose to 10.1% in September, according to official figures, as the economy reels from the effects of rising prices and the fallout from the mini-budget.
The Office for National Statistics (ONS) said the consumer prices index (CPI) measure rose from an annual rate of 9.9% in August to match the recent 40-year high seen in July.
The report showed the largest upwards contribution came from food costs, while fuel provided the greatest downside pressure.
The data was released against a backdrop of turmoil – partly a result of the effects caused by Russia’s war in Ukraine and the Western sanctions imposed in response.
Households and businesses are also facing greater uncertainty ahead after the mini-budget tax and spending giveaway of 23 September was largely overturned following a violent rejection by financial markets.
There are now just 12 days left for new Chancellor Jeremy Hunt to find ways to gain economic confidence – and a plug for Britain’s funding gap – before the 31 October “medium-term fiscal plan” and analysis of the situation from the Office for Budget Responsibility (OBR).
Benefits and pensions implications
The lack of clarity on the government’s spending plans leaves millions of pensioners and benefit claimants in limbo.
That is because September’s inflation figure has implications for how their payments are uprated.
If the government decides to raise benefits by inflation, the hike will come into effect from next April.
September’s figure is also used for reviewing the triple-lock pension commitment.
The triple-lock means pensions will rise by either average earnings, CPI inflation based on September’s rate, or 2.5% – whichever is highest.
With average earnings most recently hitting 5.4%, the triple lock should ensure pensions rising by the inflation rate in April next year.
However, on Tuesday, Downing Street indicated ministers could ditch their commitment to the triple lock as Mr Hunt finds ways to claw back funds.
The Financial Times reported on Wednesday morning that he could make a move on bank profits, in addition to potentially taking a greater share of energy company earnings to help balance the books.
Household finances are widely facing greater uncertainty after Mr Hunt confirmed the universal energy price guarantee, capping wholesale costs, would end in April and likely become more targeted in the months beyond.
It threatens to add to inflation next spring, should the majority of bill-payers have to stump up energy costs in line with energy price cap predictions of around £4,000 annually.
Commenting on the current price picture, ONS director of economic statistics, Darren Morgan, said of the headline inflation figure: “The rise was driven by further increases across food, which saw its largest annual rise in over 40 years, while hotel prices also increased after falling this time last year.
“These rises were partially offset by continuing falls in the costs of petrol, with airline prices falling by more than usual for this time of year, and second-hand car prices also rising less steeply than the large increases seen last year.
“While still at a historically high rate, the costs facing businesses are beginning to rise more slowly, with crude oil prices actually falling in September.”