London Letter: Britain wakes up to realisation that price rises are inevitable

As inflation leapt to its highest level in almost two years last month, British government statisticians insisted on Tuesday that the rise had little to do with the collapse in the value of the pound since the Brexit referendum.

The Office for National Statistics' head of inflation, Mike Prestwood, pointed out that prices paid by manufacturers for raw materials were unchanged over the month and said there was "no explicit evidence the lower pound is pushing up the prices of everyday consumer goods."

And, he added, although the rise in the consumer price index from 0.6 per cent in July and August to 1 per cent in September was larger than the City had expected, the cost of living in Britain remains low by historic standards.

The measured words from the nation's number-crunchers were in stark contrast to the hysteria of "Marmite-gate" the previous week, when consumer goods giant Unilever attempted to impose a 10 per cent price rise on a range of products to compensate for the near-20 per cent collapse in the value of sterling since Britain's vote to leave the European Union.

Consumer champion

Retaliation by Britain’s biggest supermarket group,

Tesco

, was swift and very public. With Tesco boss

Dave Lewis

– a former Unilever executive – cast in the unaccustomed role of consumer champion, the retailer refused to accept the price rise.

It removed a number of leading Unilever brands from its website, including some of the most popular products in the country – Pot Noodles, PG Tips, Hellmanns mayonnaise and, of course, Marmite.

The row made the front pages of many newspapers and, for a large number of people, appears to have been the first realisation that price rises are inevitable after the Brexit-inspired plunge in the value of the nation’s currency. Quite what they thought would happen to the cost of imports with the pound worth a fifth less than it was a few months ago it something of a mystery.

So while there may have been no signs that the weak pound pushed up the cost of consumer goods in September, there will be plenty of explicit evidence in the months ahead, with the cost of living set to climb rapidly to reach the government’s target of 2 per cent early next year and then on to breach it by rising to, and possibly beyond, 3 per cent.

The price of food – which actually fell in September – and food packaging is expected to increase sharply later this year and next as the cost of imports rise.

Economist Andrew Sentence, a former member of the Bank of England's interest rate setting committee, warned that the increase in inflation to 1 per cent "is just the tip of the inflationary iceberg that is coming our way".

Severe squeeze

The Trades Union Council highlighted the risk of another severe squeeze on earnings, with weaker pay growth and rising inflation combining to cut living standards again. And there was a warning from the Institute for Fiscal Studies that poorer households will, as always, be among the hardest hit. The IfS estimates that less well off households will lose an extra £100 following former chancellor George Osborne’s decision to freeze some benefit payments. This had already been expected to cost poorer households £260 a year but inflation will take the real cost to £360.

Anyone hoping to buy a home in London for less than £120,000 had better start searching quick – within the next few months there’ll be nothing on the market below that level.

That’s the prediction of London estate agency Jackson-Stops, which predicts that homes in the lowest-price bracket “will go the way of the black rhino” this year.

A swift search of the property websites reveals there’s already precious little on offer at that level even in the farthest-flung parts of the capital.

There’s a few one-bed retirement homes in areas such as Bexley and Barking & Dagenham that can be had for £120,000 or less – and a selection of garages – but not much else for the would-be home owner.

It was in 1995, just 21 years ago, that homes costing £10,000 or less disappeared from the London market. In that year, almost three-quarters of the homes sold in London went for £100,000 or less.

By 1998, the bottom £20,000 price bracket disappeared and by 2008 the £100,000 home had become extinct.

By 2020, there'll be nothing on the London market for less than £150,000, the property group predicts. And homes for less than £200,000 are also on the endangered list, as they are likely to vanish from the capital by the year 2025. Fiona Walsh is business editor of the guardian.com