What is the current rate of inflation and what does it mean for you?

The UK rate of inflation returned to 10.1 per cent for the 12 months to September, according to the Office for National Statistics (ONS) – after dropping slightly to 9.9 per cent in August – keeping it at its highest level for 40 years as the cost of living crisis continues to bite.

The situation will likely get worse before it improves, with the Bank of England (BoE) forecasting inflation to pass 13 per cent in the final quarter of this year, well north of the government’s target of 2 per cent.

The present spike means that the price of everyday items like staple foods, fuel, clothing, shoes and furniture have all climbed over the last year, a development that threatens to hit low-income families hardest at a time when they can least afford it.

Rising costs, staff shortages and supply chain disruption are known to be affecting both big name retail brands and small businesses alike, leaving them with little choice, as they see it, but to pass on price rises to consumers to ensure their own survival.

“After last month’s small fall, headline inflation returned to its high seen earlier in the summer,” ONS director of economic statistics Darren Morgan said.

“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.”

Responding to the figures, new chancellor Jeremy Hunt said that the government “will prioritise help for the most vulnerable while delivering wider economic stability.”

But his Labour counterpart, Rachel Reeves, said that the figures would bring more anxiety to families.

“It’s clear that the damage has been done. This is a Tory crisis, made in Downing Street and paid for by working people,” she said.

“Mortgage costs are soaring, borrowing costs are up, living standards down and we are forecast to have the lowest growth in the G7 over the next two years.”

ONS data published on 11 October recorded Britons seeing their average total pay rise by 6 per cent and regular pay by 5.4 per cent between June and August – the highest since the onset of the coronavirus pandemic – but wages still failing to keep pace with the runaway rate of inflation.

The figures indicate that average weekly earnings for total pay in August 2022 was £617 and regular pay was £574. Private sector workers saw their pay rise 6.2 per cent before inflation, almost three times as fast as their counterparts in the public sector, who received a 2.2 per cent increase, but the rises were dwarfed by soaring costs for gas, electricity, fuel, food and other goods.

The data sets the Rishi Sunak government on course for further clashes with public servants including nurses, doctors, lawyers and teachers who have seen the value of their incomes collapse this year, adding to the pain of a decade of falling real wages.

This comes after the freeze of Ofgem’s energy price cap, the maximum amount a utility company can charge an average customer per year, at £2,500 for two years will have provided some relief to households, which were facing another 80 per cent rise in their bills from 1 October in response to soaring global gas prices.

Had the regulator’s planned increase in the cap been allowed to proceed, it would have risen from £1,971 to £3,549 for a household on average usage, with those on prepayment meters charged even more.

However, Mr Hunt has since moved to scale back that support to just six months, taking us to April at which point it will be reviewed and a new strategy imposed.

British consumers face flatlining wages and higher costs for everything from food, clothing, petrol, heating, housing and rent at a time when rising interest rates mean the cost of borrowing is going up too, most recently climbing another 0.5 percentage points to 2.25 per cent as the BoE’s Monetary Policy Committee moved to try to put the brakes on inflation.

While the current outlook appears bleak indeed, consumers are being encouraged to treat the present adversity, which will ultimately pass, as an opportunity to reassess their personal circumstances, streamline their finances and cut out any inessential regular outgoings.

“The most important thing savers can do now is review how this environment will affect their finances, where they are keeping their savings, and make adjustments as necessary,” said Colin Dyer, client director at Abrdn Financial Planning.

“For example, holding significant amounts of cash in a deposit account is effectively losing money in an inflationary environment, so depending on attitude to risk, investing in a stocks and shares ISA may provide a greater return if investing for the longer term.”