Darren Jones, chief secretary to the Treasury, has claimed that last month’s Budget would help households in need, easing the cost of living crisis with a raft of spending measures.
However, economists fear the outlook is unlikely to improve any time soon, as inflation rebounds further thanks to those measures announced in the Chancellor’s Budget.
“The rebound in inflation to 2.3pc in October is probably the start of a gradual climb which will see headline inflation return to 3pc early next year,” says Pugh.
This will happen “as the measures in the Budget start to take effect”, he adds.
Budget ‘shattered confidence’
On Oct 30, Reeves announced a swathe of policies that are expected to push up prices.
These include a £25bn increase in employer National Insurance contributions (NICs) and a higher than expected 6.7pc increase in the national living wage, as well as a £70bn increase in public spending.
“Unfortunately, while the recent Budget stabilised the public finances, it has undermined growth in the private sector, shattering business confidence and renewing inflationary pressures,” says Anna Leach, chief economist at the Institute of Directors (IoD).
“Broader efforts to improve the environment for investment have been overwhelmed by distortionary tax-raising measures.”
Sanjay Raja, chief UK economist at Deutsche Bank, says that the rises in employer NICs will “almost certainly” push inflation higher as retailers grapple with a “double whammy” of cost rises alongside higher minimum wage.
He adds: “This alone, we think, will push inflation higher by a few tenths.”
A group of 79 major retailers including Marks & Spencer, Tesco and Next this week wrote to the Chancellor warning of job losses and higher prices as shops are forced to take on up to £7bn in extra costs as a result of the Budget.
Kris Hamer, director of insight at the British Retail Consortium, which coordinated the letter, said: “For an industry that already operates on slim margins, these new costs will inevitably lead to higher prices.
“If the Government wants to prevent a return to high inflation, it needs to consider mitigating the impact of these costs on retailers.”