You know bad economic news is looming when a Chancellor of the Exchequer tries to get their retaliation in first.

Treasury guidance on Tuesday afternoon that Rachel Reeves has prioritised easing the cost of living had to be seen in the light of inflation figures, published this morning, and widely expected to rise above 4% for the first time since the aftermath of the energy crisis.

In that context the fact consumer price inflation in September remained level at 3.8% counts as qualified good news for the Treasury, if not consumers.

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The figure remains almost double the Bank of England target of 2%, the rate when Labour took office, but economists at the Bank and beyond do expect this month to mark the peak of this inflationary cycle.

That’s largely because the impact of higher energy prices last year will drop out of calculations next month.

The small surprise to the upside has also improved the chances of an interest rate cut before the end of the year, with markets almost fully pricing expectations of a reduction to 3.75% by December, though rate-setters may hold off at their next meeting early next month.

September’s figure also sets the uplift in benefits from next April so this figure may improve the internal Treasury forecast, but at more than double the rate a year ago it will still add billions to the bill due in the new year.

For consumers there was good news and bad, and no comfort at all from the knowledge that they face the highest price increases in Europe.

Fuel prices rose but there was welcome relief from the rate of food inflation, which fell to 4.5% from 5.1% in August, still well above the headline rate and an unavoidable cost increase for every household.

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The chancellor will convene a meeting of cabinet ministers on Thursday to discuss ways to ease the cost of living and has signalled that cutting energy bills is a priority.

The easiest lever for her to pull is to cut the VAT rate on gas and electricity from 5% to zero, which would reduce average bills by around £80 but cost £2.5bn.

More fundamental reform of energy prices, which remain the second-highest in Europe for domestic bill payers and the highest for industrial users, may be required to bring down inflation fast and stimulate growth.

If you eat beef, and ever stop to wonder where and how it’s produced, Jonathan Chapman’s farm in the Chiltern Hills west of London is what you might imagine. 

A small native herd, eating only the pasture beneath their hooves in a meadow fringed by beech trees, their leaves turning to match the copper coats of the Ruby Red Devons, selected for slaughter only after fattening naturally during a contented if short existence.

But this bucolic scene belies the turmoil in the beef market, where herds are shrinking, costs are rising, and even the promise of the highest prices in years, driven by the steepest price increase of any foodstuff, is not enough to tempt many farmers to invest.

For centuries, a symbolic staple of the British lunch table, beef now tells us a story about spiralling inflation and structural decline in agriculture.

Mr Chapman has been raising beef for just over a decade. A former champion eventing rider with a livery yard near Chalfont St Giles, the main challenge when he shifted his attention from horses to cows was that prices were too low.

“Ten years ago, the deadweight carcass price for beef was £3.60 a kilo. We might clear £60 a head of cattle,” he says. “The only way we could make the sums add up was to process and sell the meat ourselves.”

Processing a carcass doubles the revenue, from around £2,000 at today’s prices to £4,000. That insight saw his farm sprout a butchery and farm shop under the Native Beef brand. Today, they process two animals a week and sell or store every cut on site, from fillet to dripping.

Today, farmgate prices are nearly double what they were in 2015 at £6.50 a kilo, down slightly from the April peak of almost £7, but still up around 25% in a year.

For consumers that has made paying more than £5 for a pack of mince the norm. For farmers, rising prices reflect rising costs, long-term trends, and structural changes to the subsidy regime since Brexit.

“Supply and demand is the short answer,” says Mr Chapman.

“Cow numbers have been falling roughly 3% a year for the last decade, probably in this country. Since Brexit, there is virtually no direct support for food in this country. Well over 50% of the beef supply would have come from the dairy herd, but that’s been reducing because farmers just couldn’t make money.”

Political, environmental and economic forces

Beef farmers also face the same costs of trading as every other business. The rise in employers’ national insurance and the minimum wage have increased labour costs, and energy prices remain above the long-term average.

Then there is the weather, the inescapable variable in agriculture that this year delivered a historically dry summer, leaving pastures dormant, reducing hay and silage yields and forcing up feed costs.

Native Beef is not immune to these forces. Mr Chapman has reduced his suckler herd from 110 to 90, culling older cows to reduce costs this winter. If repeated nationally, the full impact of that reduction will only be fully clear in three years’ time, when fewer calves will reach maturity for sale, potentially keeping prices high.

That lag demonstrates one of the challenges in bringing prices down.

Basic economics says high prices ought to provide an opportunity and prompt increased supply, but there is no quick fix. Calves take nine months to gestate and another 20 to 24 months to reach maturity, and without certainty about price, there is greater risk.

There is another long-term issue weighing on farmers of all kinds: inheritance tax. The ending of the exemption for agriculture, announced in the last budget and due to be imposed from next April, has undermined confidence.

Neil Shand of the National Beef Association cites farmers who are spending what available capital they have on expensive life insurance to protect their estates, rather than expanding their herds.

“The farmgate price is such that we should be in an environment that we should be in a great place to expand, there is a market there that wants the product,” he says. “But the inheritance tax challenge has made everyone terrified to invest in something that will be more heavily taxed in the future.”

While some of the issues are domestic, the UK is not alone.

Beef prices are rising in the US and Europe too, but that is small consolation to the consumer, and none at all to the cow.

Rachel Reeves will tell Cabinet colleagues she is considering measures to reduce household energy bills as part of her budget response to rising inflation, expected to reach 4% when official figures are announced on Wednesday.

Economists forecast that consumer price inflation (CPI) will have reached double the Bank of England’s target in September, driven up from the 3.8% recorded in August by rising fuel and food inflation.

Speaking ahead of publication of the figures by the Office for National Statistics, a Treasury spokesman said that bringing down inflation was a priority, and the chancellor would convene a meeting of key cabinet colleagues on Thursday to stress its importance across government.

The spokesman specified that action to bring down energy prices was among the options being considered, the strongest indication yet that action on soaring consumer bills will feature in next month’s budget.

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The chancellor is understood to be considering cutting the 5% VAT rate on bills to zero, a move that would save billpayers around £80 a year and cost £2.5bn to implement.

Labour’s manifesto promised it would cut bills by £300 a year, but the last Ofgem price review saw a small increase driven by policy costs, leaving the government under pressure to reduce the impact of domestic energy rates that are the second-highest in Europe.

The spokesman said: “The chancellor’s view is that tackling the cost of living is urgent, and everything is on the table – including measures to bring down energy bills. She’s getting the whole of government to play its part, it’s her number one focus.”

The chancellor’s actions are a tacit acknowledgement that Wednesday’s inflation figures will be a difficult moment for a government that came to power promising to bring down the cost of living.

After peaking at more than 11% in October 2022, CPI returned to the Bank’s target of 2% in May last year, two months before Labour took office.

After briefly falling below 2% in September 2024 as higher energy prices from a year earlier dropped out of the calculation, it has marched steadily upwards, largely driven by energy and food prices.

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The Bank of England has forecast that this September’s figures will mark the peak of this inflation cycle for the same reason, with the Ofgem energy cap rising less this October than a year ago.

That underlines the importance of gas and electricity bills to household finances, the official figures and the government’s energy policy.

Campaigners and some energy companies have urged the government to bring down electricity bills by shifting levies for renewables and funding for social programs to general taxation, a move estimated to cost £6bn.

The Conservatives have said they would cut levies that currently pay for carbon taxes and older forms of renewable power subsidy, cutting bills by £165 a year.