From Food to Gas: What's Behind the UK's Persistent Inflation Issues?

From Food to Gas: What's Behind the UK's Persistent Inflation Issues?

Felix Yim 22/03/2023
From Food to Gas: What's Behind the UK's Persistent Inflation Issues?

The UK is currently facing higher than expected inflation rates, with the cost of living rising faster than in most other advanced economies.

According to the Office for National Statistics, price rises rose by 10.4% in the year to February, compared to 6% in the US and 8.5% in the Eurozone. While it's important not to read too much into one month's figures, the UK's inflation rate has been persistently higher on average compared to other large economies in Europe and the US over the past year.

There are several factors driving up prices in the UK, including food price rises, wholesale gas prices, and worker shortages and wage rises.

One of the key reasons of February's inflation increase was the continued rise in food prices in the United Kingdom. Food inflation was 18.2% higher last month compared to the same period last year, with salad and vegetable shortages driving the latest increases in customer costs. Tomatoes, peppers, and cucumbers have been among the items in low supply, owing to severe weather in Spain and North Africa, which has hampered harvests. Throughout the winter, the UK imports a large amount of such produce from other countries. High energy prices in the UK have exacerbated the shortages, causing vegetable growers and farmers to reduce crop yields or forego producing specific items altogether due to rising operating expenses.

Minette Batters, president of the National Farmers Union (NFU), stated that "it's a very complex picture," but all of the union's surveys of growers show that businesses are contracting and the more the sector shrinks "the less there is, the rationing comes in and that just drives further food inflation."

Farmers have also argued that retailers and supermarkets are not paying a fair price for them for their produce, and the government's food tsar has said supermarkets having "fixed-price contracts" with suppliers means when food is scarce, some producers opt to sell less to the UK and more elsewhere in Europe.

Wholesale gas prices are another element driving rising prices in the UK. After Russia's invasion of Ukraine, global energy prices have skyrocketed. Nonetheless, the impact of increasing gas costs on consumers and businesses in the UK has been more severe than in other advanced nations. Experts claim the price of gas in the UK has risen dramatically. Jonathan Haskel, a member of the Bank of England's Monetary Policy Committee, previously stated that the United Kingdom appeared to be one of the "most vulnerable" to energy price shocks. He claimed that the UK uses more gas to heat homes and keep lights on than other European countries. He also added that gas was transferred mostly via pipelines from a handful of suppliers, whereas the US produced most of its own gas and relied more on Liquefied Natural Gas (LNG). Taxes being lower on electricity and gas paid by UK consumers compared to their European neighbors meant when wholesale gas prices rise, UK energy bills "would be expected" to go up more than others, he said.

The energy price shock is a major driver of the prolonged high inflation in the UK, but it's not the only cause with the UK also having a major worker shortage. During the pandemic, all major countries saw their workforce shrink. But while most leading economies have since recovered, the UK still has about 400,000 more people not working than in December 2019. According to a study conducted by the think tanks Centre for European Reform and Britain in a Changing Europe, Brexit has resulted in 330,000 fewer workers in the UK, with industries such as transportation, hospitality, and retail being particularly heavily hit.

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Felix Yim

Tech Expert

Felix is the founder of Society of Speed, an automotive journal covering the unique lifestyle of supercar owners. Alongside automotive journalism, Felix recently graduated from university with a finance degree and enjoys helping students and other young founders grow their projects. 

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