Writing in his Economic Outlook column in The Sunday Times of 20th October 2013, David Smith posed the question: Why is inflation so much higher in Britain?
New Eurostat figures show that the UK inflation rate last month of 2.7% was the highest of all 28 EU member states and more than double the EU (1.3%) and Eurozone (1.1%) average. More than half of EU member states have annual inflation rates of 1% or less. This has been picked up by the opposition Labour party adding weight to their argument that there is a cost of living crisis in the UK which the government is failing to control.
Ruling out the effects of previous Sterling weakness pushing up import prices for globally-traded commodities such as food and energy, or pay increases (up by only 0.7% on a year earlier), the major problem for the UK appears to be domestically generated inflation and particularly in the service sector (3.4% last month). Over the past 6 years for example, food and drink prices in Britain have risen by 35.6% compared with only 1% in the Irish Republic! It would appear that companies can push through price rises in Britain more easily than in other countries or , put another way, perhaps up until now such price increases have been more culturally accepted (or expected) than in other EU countries, but not now with consumer incomes squeezed during a period of austerity.
Inflation is significantly too high for the current rate of earnings growth and, with so-called Green Taxes already 9% and rising to 14% of consumer energy bills, it is not so surprising that the Prime Minister has been forced by the Opposition in the Commons yesterday to announce a re-think on energy policy, pricing and the overall competitiveness of the UK energy market
Reference: Like it or not, Britain is hitched to high inflation, David Smith (david.smith@sunday-times.co.uk) , Economic Outlook, The Sunday Times, 20th October, 2013
Tags: 2015 Election, British politics, Conservative Party, Cost of living