While experts expect inflation to have peaked in the United States, UK citizens will continue to feel the fierce bite of runaway prices.
The country registered a rise of 9.1% in May, the highest level in four decades, and according to forecasts by the Bank of England, the rate will reach 11% this fall.
The United States registered the same figure in the month of June, but none of the first five world powers, according to their GDP, had a higher figure.
And, contrary to what is expected in the rest, the United Kingdom will register “high inflation for much longer”, explained Andrew Bailey, governor of the Bank of England, speaking of the forecasts for the remainder of the year.
That, together with declining growth and the Bank of England’s little room for maneuver to redirect the situation, have placed the world’s fifth largest power in a tense position.
It is not surprising, therefore, that the state of the UK economy was one of the factors that forced Boris Johnson to resign as leader of the Conservative Party last week.
A decision that will lead his party to replace him in office next September, ending the shortest term of a prime minister since 1900, after spending less than three years at the head of the country.
Weeks before resigning, the parliamentarians asked Johnson to lower taxes in order to reactivate the economy and give a break to the pockets of the middle class.
But the bulging fiscal deficit, accelerated by huge public stimulus spending to deal with the ravages of the coronavirus pandemic, has left the government with few options.
In fact, the issue of inflation has become one of the main concerns of the British according to a recent YouGov survey.
“Without being able to recover from covid-related losses until early 2022, the United Kingdom was faced with a new stagflation crisis due to the war in Ukraine,” Silvia Dall’Angelo, senior economist at the signed Federated Hermes.
“The cost-of-living crisis here is very similar to that faced by its European neighbours,” he adds, but it is internal issues that force the UK to face some specific challenges and bring it closer to a recession.
Staff shortage
To begin with, and contrary to what one might think, the strength of the labor market is having an unexpected effect.
“As the economy has recovered [tras la pandemia]the demand for labor has been strong and has collided with the shortage of supply”.
An almost exact formula to cause inflation.
As an example, what happened in the restaurant sector.
Many pubs and restaurants, unable to find waiters or cooks and facing the prospect of going out of business, have ended up raising fees to attract staff.
“The UK’s 3.8% jobless rate is close to 40-year lows and is a component helping to boost wages across the economy,” says Ben Laidler, global markets strategist at the trading platform. eToro investment.
hard Brexit
This understaffing is related to Brexit, as many food supply chain workers were originally from the continent and are no longer allowed to work in the UK.
“Since the exit agreement from the European Union was negotiated, signs of tensions in trade and private labor markets have increased due to the fact that there is no longer the capacity to hire EU citizens in the same way that it could be do in the past,” explains Chris Iggo, president of the AXA IM Investment Institute.
“In the United Kingdom, the severity of the cost of living crisis may be felt more, since the economy is also digesting the hard Brexit, which caused an increase in taxes on households,” says the economist of the firm Julius Baer, David Alexander Meier.
Experts believe the UK is heavily exposed to the two main drivers of inflation globally today: a strong labor market and rising energy prices.
“Most other countries have one of these factors, but not both,” adds Laidler.
50% more expensive energy
And it is that another reason for a higher peak in general inflation in the United Kingdom compared to similar economies is “the rapid transfer of energy prices to consumers,” adds Meier.
“Power bills are expected to go up again this fall,” he says.
The energy price ceiling, which determines household bills, will increase by around 50% in the next revision in October, once again damaging the purchasing power of citizens.
The UK is a major importer of oil, gas and coal, accounting for around a third of its total needs, making it highly exposed to rising global energy prices.
The economist Dall’Angelo predicts a new level of headache for the United Kingdom if the current interruptions in gas supplies from Russia continue.
“This could lead to power rationing in the winter months, which would have implications for the UK.”
Added to this is the country’s limited capacity to store gas in the face of the strategy that many countries are following to prepare for supply cuts and for winter in the northern hemisphere.
imported food
Other elements of UK vulnerability include a higher proportion of imported food.
“The rather weak pound since the Brexit referendum is also exerting upward inflationary pressure through rising import prices,” Meier explains.
And it is that, added to the shortage of personnel, the shortage of products is putting even more pressure on the British economy and empty shelves have been seen in several supermarkets and long lines to buy gasoline.
For all this, the expert believes, the peak of general inflation in the United Kingdom will take longer to reach and, consequently, the change and decrease in inflation rates will also occur later.
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BBC-NEWS-SRC: https://www.bbc.com/mundo/noticias-internacional-62139864, IMPORTING DATE: 2022-07-14 05:30:05
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