Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Why is inflation higher in the UK than in the EU?

Why is inflation higher in the UK than in the EU?

As the Bank of England hikes interest rates to keep prices in check, the UK's inflation rate remains worse than the EU's. Here's why.

The Bank of England has raised UK interest rates by a quarter of a percentage point to 4.5 per cent – the highest level since 2008.

It’s an attempt to lower the country’s inflation, which remains in the double digits, at 10.1 per cent as of March this year.

That's more than five times the Bank of England's 2 per cent inflation target and a higher rate than in any other major European economy. The EU's average inflation rate stood at 8.3 per cent in March.

But both the UK and the EU have been hit hard by the COVID-19 pandemic as well as by the effects of Russia’s invasion of Ukraine… So, what is going on?


1. Soaring food prices


Food prices in the UK are rising at the fastest rate since 1977, partly fuelled by salad and vegetable shortages over the past few months in the UK.

Due to extreme weather affecting Spain and Morocco, the main suppliers of vegetables such as lettuce and tomatoes have been mostly to blame.

Shortages have also been exacerbated by high energy prices leading to farmers cutting down on crop yields and heavily relying on imports for certain foods, as explained in this separate fact-check by The Cube.


2. An inflexible labour market


According to the BBC, while most major economies have recovered from the labour shortages caused by the COVID-19 pandemic, the UK still has about 400,000 more people not working than in December 2019.

For Jacob Kirkegaard, an economist at the German Marshall Fund, this is due to two reasons.

"There is a very high level of regional income inequality across the UK. Living in London is more expensive than living in most of the rest of the country, making it quite difficult for people to move to places with more economic activity," he told Euronews.

"So, you have increasing labour shortages in parts of the UK. Then, you've got a significant number of European citizens leaving the UK after Brexit. Even though non-EU immigration to the UK has increased, these workers may not possess the same level of skills.

"Overall, you have a less well-functioning labour market creating bottlenecks and the necessity for increasing wages, hence driving inflation".


3. Brexit


According to experts like Kirkegaard, inflation is also directly correlated to the UK leaving the European Union.

"The breaking up of all the traditional trade flows that the UK had with the rest of Europe is significant. This is particularly important on issues like fresh food and other products that usually the UK would import seamlessly from the rest of the EU. And now, of course, it's much more difficult. That creates scarcity which creates rising prices," he explained.


4. Gas prices


Rising energy prices hit UK households and businesses hard - harder than in other European countries.

According to Reuters, Britain's high rate of energy inflation shows it’s over-reliant on gas for heating homes. It also reflects the poor energy efficiency of its housing stock.

But Jacob Kirkegaard disagrees that energy prices are the main driver behind the UK's inflation rate.

"Natural gas prices in Europe today are not as high anymore. It is true that UK gas prices rose more than in many other European countries, but frankly, they should also have come down more in recent months," he said.

"The fact that this decline in energy prices has not caused the overall level of inflation to decline nearly as much as in the rest of the EU indicates that, in my opinion, the bigger issues today are not on gas, but in other parts of the UK economy," he added.


What's the inflation rate in other European countries?


Luxembourg has the lowest rate at just 2.7 per cent, followed by Belgium at 3.3 per cent, then Cyprus and Spain both which have a rate of 3.8 per cent, according to Eurostat.

But there are EU countries performing worse than the UK. Hungary has an inflation rate of 25.6 per cent, the Czech Republic 16.5 per cent, followed by Poland at 15.2 per cent.

How did countries like Luxembourg, Belgium and Spain manage to keep their inflation rates lower than the UK?

"In the case of Spain, one of the main reasons for its lower level of inflation for a number of months is that they put a price cap on an important part of the energy sector. That was very effective in keeping the inflation level down," said Kirkegaard.

"The big reason why in the last six to nine months you've had such big differences in the level of inflation across particularly the euro area countries is that governments have implemented different variations of price controls on gas or electricity, and other countries haven't done that at all".

The Bank of England now expects inflation to fall to 5.1 per cent by the end of the year, which is less of a drop than the 3.9 per cent that was forecast back in February.

Newsletter

Related Articles

Budapest Post
Close
0:00
0:00
Olaf Scholz Assures: No Cuts to German Welfare State Amid Budget Crisis
Greece and Turkey Agree to Reboot Relations After Landmark Talks in Athens
Greece and Turkey Agree to Reboot Relations After Landmark Talks in Athens
No. 10 Advised: Rwanda Plan Has '50% at Best' Chance of Success Before Election
Significant Shift: UK Voters Express Desire for Closer Relationship with EU Since Brexit
Sadiq Khan Appeals to Progressives for Support Amidst Concerns Over New Voting System
Sunak Faces Further Scrutiny in Covid Inquiry as Pranksters Claim Access to His Former Phone Number
NHS Issues Apology for Sending Incorrect Body for Family Cremation
Labour Intensifies Condemnation of Gaza Violence
Senior doctors' significant pay increase creates tension within NHS
Two distinct investigations into the Covid pandemic are underway in the UK, each adopting a contrasting approach
Stephen Fry Returns to Work Just Three Months After Stage Fall
Laura Kuenssberg Reports: Tory Party Divisions and Disputes Heighten Pressure on Sunak
UK's Generation X Skeptical About Retirement Prospects
EU Fiscal Agreement Sparks Disagreement Between France and Germany Over Investment Expenditure
EU Fiscal Agreement Sparks Disagreement Between France and Germany Over Investment Expenditure
UK Parliamentary Committee Criticizes Lackluster Post-Brexit Financial Reforms
UK Parliamentary Committee Criticizes Lackluster Post-Brexit Financial Reforms
US, UK, Canada Impose Sanctions on Dozens on Human Rights Anniversary The US, UK, and Canada have collectively imposed sanctions on dozens of individuals and entities for human rights abuses to commemorate the 75th anniversary of the Universal Declaration of Human Rights
US, UK, Canada Impose Sanctions on Dozens on Human Rights Anniversary The US, UK, and Canada have collectively imposed sanctions on dozens of individuals and entities for human rights abuses to commemorate the 75th anniversary of the Universal Declaration of Human Rights
"New Beginnings: Greece and Turkey Agree to Repair Relations
"New Beginnings: Greece and Turkey Agree to Repair Relations
Finland's Supreme Court Prevents Extradition of Russian Terrorism Suspect to Ukraine
Finland's Supreme Court Prevents Extradition of Russian Terrorism Suspect to Ukraine
UK Proposes Streamlined Financial Advice to Reduce Costs for Consumers
UK's Labour Party Conducts Review of Financial Services to Boost City's Growth Potential
London City Hall Condemns Blast Targeting Clean Air Zone Camera
Controversy Surrounds President Macron's Hanukkah Candle Lighting Ceremony at Elysée Palace
Venezuela Steps Up Claim on Guyana's Essequibo Region
Spain's First AI Model Earns Up to $10,000 Monthly
German Cabinet Works to Address 'No-Debt' Crisis After Court Outlaws Budget
Former President Restricted from Leaving Ukraine Amid Alleged Plan to Meet Hungary's Viktor Orban
Spain soccer kiss: Furore grows as prosecutors launch probe against federation chief
Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Steve Jobs' Son Launches Venture Capital Firm With $200 Million For Cancer Treatments
Greek PM offers tourists affected by wildfires a free stay in Rhodes next year.
Israel: Unprecedented Civil Disobedience Looms as IDF Reservists Protest Judiciary Reform
Google reshuffles Assistant unit, lays off some staffers, to 'supercharge' products with A.I.
End of Viagra? FDA approved a gel against erectile dysfunction
UK sanctions Russians judges over dual British national Kara-Murza's trial
US restricts visa-free travel for Hungarian passport holders because of security concerns
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Political leader from South Africa, Julius Malema, led violent racist chants at a massive rally on Saturday
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
How “peacekeepers” at the UN spend our American tax dollars.
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Spanish Citizenship Granted to Iranian chess player who removed hijab
×