The Office for National Statistics dropped its latest inflation reading this morning and the headline number is a stubborn 2.7%. That’s unchanged from last month, a figure that will have the suits at the Bank of England breathing a little easier but doing little for the millions of Britons still squeezed by rising costs.
Sources at the Treasury confirm the number is a ‘relief’ but the details tell a different story. Core inflation which strips out volatile food and energy prices actually ticked up to 2.3% from 2.1%. That’s the worrying part. It means underlying price pressures are still simmering beneath the surface.
The Bank’s Monetary Policy Committee has been walking a tightrope between taming inflation and not choking off growth. Today’s data gives them cover to hold rates steady at 4.75% when they meet next week. But don’t expect any dovish signals. One insider told me the hawks are already circling, pointing to sticky services inflation that remains above 5%.
What does this mean for your wallet? The cost of a pint of milk and a loaf of bread is still higher than two years ago. Energy bills have fallen back but remain elevated. And rent? Up 6.8% year on year according to separate data. The official inflation figure masks a lot of pain.
On the flip side, the economy is proving more resilient than the doom-mongers predicted. Growth has been modest but positive. Unemployment remains low at 4.1%. The City is betting on a slow and steady recovery. But I’ve seen this movie before. The last time inflation was this stubborn, it took a recession to break its back.
I’ve been digging into the underpinnings of the inflation data and uncovered something the ONS doesn’t broadcast. A significant chunk of the price stability is being propped up by government subsidies and price caps on household energy. Those are temporary measures. Once they expire, expect a surge. The Treasury’s own forecasts show inflation rebounding to 3.5% by the autumn of next year.
So the official narrative of ‘resilience’ is a carefully constructed fiction. The Bank of England knows it. The Chancellor knows it. But they won’t tell you because it would spook the markets. Keep your eyes on the core data and the hidden subsidies. The true test will come when the training wheels come off.
For now, 2.7% is the headline. But don’t let the suits convince you the battle is won.
