While the whole world is dealing with sky-high inflation, it seems like the UK is facing a number of challenges that are only pushing up the rate of inflation, causing many experts to worry that increased inflation rates are here to stay for the foreseeable future.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
The Bank of England’s Monetary Policy committee is responsible for deciding whether or not to raise the base rate, a tactic used to curb inflation. The chief economist at the Bank of England, Huw Pill, pointed to the distinct challenges as evidence that UK interest rates will likely remain raised in an effort to bring down rates.
As of November 2022, inflation hit 10.7%, a slight drop from 11.% recorded in October but still miles away from the Bank of England’s target of 2% inflation.
So what exactly are these distinct challenges that the UK is facing that make inflation more challenging here than elsewhere?
Pill described the three major challenges as trade shock to Europe as a result of the war in Ukraine, interest rates rising from historic lows to historic highs in an effort to combat inflation, as well as companies increasing prices and workers wanting fair compensation for their labour.
This all results in a perfect economic storm that’s causing higher natural gas prices, a decrease in available labour, and supply chain issues that reverberate nationwide. While much of these issues could have been predicted after the coronavirus ravaged the world for years, Russia’s war on Ukraine threw a massive spanner in the works, pushing up energy prices everywhere. Also as a result of the pandemic, a good chunk of the workforce has been eliminated due to death or long-term health concerns caused by COVID. And because of Brexit, there isn’t an influx of foreign workers to supplement the current dwindling numbers.
Because these circumstances are largely out of the nation’s control, there is little (if anything) to be done about the impact on household budgets.
There is hope on the horizon though, as disruption to global supply chains has eased and inflation is trending in the right direction.
Of course, this is an ever-developing issue, so be sure to stay up to date on all news concerning the nation’s economy and speak to your financial adviser about any concerns you may have.