Biggest squeeze on British living standards for over 18 months as fears mount over Budget tax raid

British households face the most sustained rise in the cost of living since Russia invaded Ukraine; The fear of worse to come for the budget is also increasing.

Inflation remained steady at 3.8 per cent in September, the third month in a row, the Office for National Statistics said in a bleak report published today.

While this is below the 4 per cent feared by analysts, UK inflation is the highest in the G7 and almost double the 2 per cent target.

Inflation has not been this high since the beginning of 2024, when the rise in energy and food prices following Russia’s move is still felt.

And with the economy stagnating over the summer (with growth of 0.1 per cent in August only offsetting a 0.1 per cent decline in July), Britain faces a painful period of ‘stagflation’.

This is when low or no growth combines with sharply rising prices, leaving families even worse off.

The latest contraction comes as households and businesses brace for another round of punitive tax rises in next month’s Budget.

Those with the ‘broadest shoulders’ will bear the brunt, the Chancellor warned; This has fueled fears of raids on pensions, savings and homes.

Conservative business spokesman Andrew Griffith said: ‘We are all poorer today, with anemic growth and high inflation eroding Britain’s standard of living.’

In a sign of growing concerns among employers, JCB boss Graeme Macdonald warned the Chancellor yesterday: ‘You can’t tax your way to growth.’

As the economy falters and prices rise, fears are growing that the Bank of England will be forced to delay further cuts in interest rates.

Some analysts even believe that the next move in interest rates will be an increase rather than a decrease, which would be a blow to borrowers.

George Brown, senior economist at Schroders, said: ‘There is a risk that high inflation will become entrenched in the UK due to a combination of disappointing productivity and sticky wage growth.

We expect the Bank of England to keep interest rates steady until the end of 2026, and we do not rule out that the next interest rate move will be upward.’

But WPI Strategy chief economist Martin Beck said this ‘probably marks the peak of the recent inflation rise’.

He added that although a rate cut from next month ‘seems to be off the table’, the next cut could come ‘sooner or later’.

Inflation has fallen from a peak of 11.1 percent in October 2022, when the lifting of Covid-19 restrictions and the Ukraine war caused prices to rise.

But the rate, which fell to as low as 1.7 per cent before Ms Reeves’s first budget last October, has risen again as critics blame her policies such as a £25bn national insurance tax raid on employers and a rise in the minimum wage.

Responding to the ONS figures, Ms Reeves said: ‘I am not happy with these figures. For too long our economy has been stuck, with people thinking they’re investing more and going out less. ‘All of us in government have a responsibility to support the Bank of England in reducing inflation.’

Ms Reeves also faces a £10bn increase in her benefit bill due to inflation and pressure from Labor MPs to scrap the two-child benefit limit.