Why we're out on our own on inflation

AS CHANCELLOR almost a year ago, Rishi Sunak stressed the global nature of inflation to underline how it would take time to bring prices back under control.

- Daniel O’Boyle

But today, the UK seems to stand further and further adrift from its economic peers.

In the G20 table of inflation, the UK sits in the relegation zone, ahead of only Turkey and Argentina. The UK’s 10.1% CPI figure in March compares with 6.9% in the eurozone and 5.0% in the US.

All major economies were forced to drastically increase the money supply to provide support during the pandemic. And all were affected by the war in Ukraine. So what makes the UK different?

When you look for an explanation of inflation, it’s hard to ignore energy. After Russia’s invasion of Ukraine, the cost of heating and electricity skyrocketed, but the impact wasn’t uniform. Countries like the US with plenty of their own oil could weather the storm more easily, while differences in policy when the crisis hit set the UK apart from many EU countries.

“Since the UK is a net energy importer, higher energy prices hit it harder than the US, which is a net exporter,” says Ruth Gregory, Capital Economics’ deputy chief UK economist.

“And while the eurozone suffered a similar leap in energy prices, earlier and more generous support shielded European households by more.”

Then there’s food, where prices are rising at the fastest rate since 1977.