The Bank of England (BoE) has been brutally torn apart over its two percent inflation target, with millions of Britons warned “it will get worse before it gets better”. The UK economy has been dealt another bitter blow after the annual rate of inflation last month surged to the 40-year high hit earlier this summer after food prices soared. Consumer Prices Index (CPI) inflation increased slightly from 9.9 percent in August to 10.1 percent in September – five times above the Bank of England’s long-term two percent target.
The inflation increase was predominantly driven by rising food prices, which leapt by 14.5 percent compared with the same month last year, representing the largest annual rise for four decades.
Last month, the Bank of England warned inflation is expected to peak in October at just below 11 percent, following support from the under-fire Government to freeze energy bills at £2,500 for an average household.
But the Institute of Economic Affairs (IEA) has warned the double-digit inflation rate is another certain sign “it will get worse before it gets better”, with the surging prices of food and drink being a particular concern.
The think tank lashed out at the BoE for doing “too little too late” and brutally mocked its two percent annual inflation target for being “laughable”.
Commenting on the inflation data, IEA Head of Lifestyle Economics Christopher Snowdon said: “Double digit inflation in September is what was expected and it will get worse before it gets better.
“It is particularly concerning to see food and soft drink inflation at nearly 15 percent.
“In real terms, interest rates are currently at minus eight per cent. The Bank of England keeps saying that it will not hesitate to raise rates and yet it consistently does far too little far too late.
“The two percent target is laughable. This inflation is clearly not transitory. People will continue to see their salaries and savings eaten away until the Bank of England starts taking it more seriously.”
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Three days later on September 26, BoE Governor warned the Monetary Policy Committee (MPC) would “not hesitate to change interest rates by as much as needed to return inflation to the 2 percent target sustainably in the medium term, in line with its remit”.
He said: “The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.
“The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term.
“As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly.
“The MPC will not hesitate to change interest rates by as much as needed to return inflation to the two percent target sustainably in the medium term, in line with its remit.”
Last week, Mr Kwarteng was sacked by under-pressure Prime Minister Liz Truss just over a month into the job as he paid the price for the disastrous fallout from his mini-budget.
Experienced minister Jeremy Hunt has been appointed the new Chancellor and has reversed nearly all of his predecessor’s announcements, while Ms Truss apologised for trying to do too much too soon in attempts to inject momentum into the economy.