00:00Let's talk to the international economist Vicky Price.
00:03Good to see you as always, Vicky. Welcome back.
00:05So inflation steady, but still high, of course.
00:09Should we call this a stabilisation, or is it getting stuck a bit higher than everybody would like?
00:16Well, it's a really interesting question, because, of course, most economists were expecting inflation to go up.
00:22The forecast were for 4% or perhaps 4.1%, and I think that was a big surprise that it didn't actually happen.
00:28And particularly because one of the elements that everybody had been worrying about was food.
00:34Food prices now seem to be stabilising. In fact, in the month, they fell.
00:39So if you look at September or August.
00:42So something that we had all been worrying about perhaps is now becoming less of an issue.
00:49And maybe we're beginning to be a little bit more like the Europeans.
00:52I mean, yes, food inflation has been happening everywhere, but the UK seems to have had more of an impact of whatever harvest,
01:00which didn't go very well, or climate change and so on, would have been, than perhaps the Europeans and others.
01:06So you asked about whether it's stabilising.
01:08I think there are a number of things that were done just the last few months in terms of annual increases that are allowed to happen by the government.
01:18This sort of process of, you know, water bills, for example, and the cost of stamps, the cost of licensing a vehicle,
01:26things that happen usually in the late spring.
01:29And they have carried through because they were quite significant this past year.
01:33So, and that will gradually ease.
01:37So the expectation now is maybe this is the peak and the forecasts are, maybe they've proven wrong,
01:43but the forecasts are for a slowdown in inflation to happen through 2026 with maybe reaching once again target by the end of the year.
01:52Well, you mentioned food prices there.
01:54So they're now slowing, but clearly some people still struggling to afford food.
01:58A report out today saying that one in 10 UK households are food insecure.
02:04So this persistently high inflation is still affecting families.
02:08Absolutely.
02:09And that and energy costs, of course, in the sense of electricity costs for households, which are quite high.
02:15It's one of the reasons why the government is now looking to relieve some of the pressures that households are having,
02:21particularly the lower end of the pay scale.
02:23And it is absolutely true that the lower you go in terms of incomes, the more of your income is spent on just food and energy.
02:31And there are now suggestions.
02:33They have not been confirmed that perhaps value added tax, in other words, sales tax for energy or electricity in particular,
02:42may be coming down to ease some of those pressures.
02:44But yes, you're absolutely right.
02:45I mean, food price increases have been a very important part of what has worried everybody.
02:51And if you look at GDP per head in particular and real personal disposable incomes, they have been suffering,
02:57even though we've seen real wages overall rise over the last year and a half.
03:03So this surprisingly low, let's call it, inflation number is now getting people thinking about what that might mean for interest rates, isn't it?
03:11Could we see a cut?
03:12Yes, interesting, really, that until about a week ago or so, the expectation of the markets that there would be a cut in November were very, very low.
03:25They were about 22 percent.
03:28Well, now there is an expectation that actually there would be a cut.
03:32That expectation has gone up 72 percent, if I remember correctly.
03:36I looked at the market earlier.
03:38So that suggests that there could well be a reduction in rates, which I think is exactly what Rachel Reeves, the chancellor, would like to see.
03:48Can I correct myself and say in December rather than in November?
03:52In November is when we have the budget.
03:54And a lot will depend on what type of tax increases or anything else may happen in the budget that may either act to raise inflation, possibly in the eyes of the Bank of England,
04:05or slow down the economy and therefore reduce inflation in the eyes of the Bank of England.
04:09So the decision in December will depend crucially on what happens in the budget.
04:14Vicky, great to get your thoughts as always.
04:16Thank you for coming on the program.
04:17Vicky Price, the international economist.
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