On Wednesday, the Office for National Statistics revealed UK inflation has fallen from 4% in January to 3.4% last month, the lowest it’s been since 2021.
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While the news is significant given that the measure of the growing cost of goods and services peaked at 11.1% in October 2022, a 41-year high, a decline only means prices are going up at a slower rate, they are not falling.
What’s more, the 3.4% figure is still short of the Bank of England’s target of 2%.
Nonetheless, Conservative minister Leadsom was keen to promote the downward trajectory against the backdrop of Tory unrest.
When asked on Sky News about whether the party was now united, Leadsom said instead: “I think what’s really important is we have seen a fantastic drop in inflation today. That’s what’s really important.
“That has obviously cheered everyone up, it’s what we have been working towards is seeing the cost of living crisis end … seeing people able to take more home in their pay packets or in their salaries every day. That’s the critical point.”
However, economists question whether government’s can sincerely take credit for getting inflation back under control, not least since central banks control the base interest rate that is the key tool to combat price growth, and ministers blamed global factors when inflation spiralled to record highs.
Appearing on the BBC’s Sunday with Laura Kuenssberg last weekend, Rishi Sunak said the government must “hold our nerve” in the quest to bring down inflation, even if it means higher interest rates for a while.
However, his comments were interpreted as a message to the country at large, that we all just have to suck up higher mortgage and rent costs, on top of rising food and energy bills, until things get better at some point in the future.
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Coming from any prime minister that would be a tough political message to sell; coming from one as personally wealthy – and mortgage-free – as Sunak, it is even tougher.
And while politicians’ personal financial circumstances are usually off-limits, the PM’s opponents spot a major weakness and are beginning to take advantage.
At prime minister’s questions on Wednesday, SNP Westminster leader Stephen Flynn asked Sunak: “May I ask him, the near billionaire, when was the last time that he struggled to pay a bill?”
The fact that he completely avoided answering the question merely confirmed how uncomfortable this topic is for the PM.
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Labour leader Keir Starmer also made a point of mentioning this week that his own mortgage has gone up – a less-than-subtle invitation for voters to compare his situation with that of the prime minister.
Gabriel Milland, partner for research at Portland Communications, has carried out focus groups across the country, gauging the views of ordinary voters on the main issues of the day. His findings are a mixed bag for Sunk.
“Generally speaking, it’s not as if voters have a problem with Sunak being wealthy per se,” he told HuffPost UK.
“You have to remember that the kind of salaries that all MPs, let alone frontbenchers, earn places them far above average or median earnings. To most people, all politicians are very well off.
“Where it does become a problem is if politicians appear to be trying to be something that they are not. Boris Johnson never made any bones about the fact that he is, relatively speaking, very posh. Even working class voters accepted him for that.
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“What absolutely did cut through in the groups last year was the incident with the contactless payment card and and when he filled up a car with petrol and it turned out not to be his.”
Milland added: “There’s a danger of over-stating all this though. What the public absolutely do want is the sense that the government on their side and doing stuff to help them.
“They’re not that bothered if Sunak himself is facing the same sort of worries over his gas bill that they are.”
However, a senior Labour source said that their own focus groups suggest voters can make the distinction between a PM who is wealthy but seemingly in touch with their concerns – like David Cameron – and one whose unimaginable fortune means he has no idea about ordinary people’s lives.
“We’ve always tried to avoid doing stuff on him being rich, but gradually we’ve started to pick up that people see him as being out of touch,” he told HuffPost UK.
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“In focus groups we gets lots of ‘he’s a billionaire’ and ‘he’s part of the jet set elite’.”
Another added: “Someone who’s grown up within the wealth that surrounds him and always has done can’t possibly understand what it’s like for somebody like me.”
The Labour source said that rather than directly attack Sunak’s wealth, they want to convince the public that he’s out of touch with their concerns.
“It’s not how much money that’s in his bank account that matters, it’s things like the US green card, his wife’s non-dom status and him flying round the country in a helicopter,” they said.
“It builds up a picture of someone who’s out of touch and doesn’t have any idea of how you live your life.”
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Sunak has been criticised for his preference for private jets rather than train travel
No10 Downing Street
Sunak’s huge personal fortune is at least some comfort for him after another dreadful few days in Number 10.
It was supposed to be ‘NHS week’, when the government set out how it would tackle the many problems facing the health service and culminating in the long-awaited workforce plan setting out a strategy to recruit more doctors and nurses.
Rumours are rife that the PM might try to reset his government with a pre-summer recess reshuffle in what many will see as a last-ditch attempt to save a premiership that is barely eight months old.
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As one gloomy Tory aide observed: “There can’t be any more wheels to fall off of this particular shit wagon.”
Rishi Sunak has said there is a “deep moral responsibility” to get inflation under control as the cost-of-living remains stubbornly high.
The prime minister’s characterisation came as official data on Wednesday showed inflation defied expectations that it would slow and held at 8.7% in May – making the rate of price growth in Britain the highest of any major economy once again.
It means the Bank of England is likely to hike interest rates again on Thursday in a desperate attempt to cool the economy down, spelling bad news for homeowners who face further increases in mortgage repayments. The central bank’s over-arching aim is to keep inflation at 2%.
Sunak vowed in January that the government would halve the rate at which prices are rising by the end of the year. At the time, the inflation rate was around 10%.
Speaking at an event on Thursday, Sunak will put an added emphasis on the goal.
He is expected to say: “I feel a deep moral responsibility to make sure the money you earn holds its value.
“That’s why our number one priority is to halve inflation this year and get back to the target of 2%.
“And I’m completely confident that if we hold our nerve, we can do so.”
His comments suggest lowering inflation now trumps economic growth – one of Sunak’s other promises – which could have other negative economic impacts.
Acknowledging that this is a difficult time for families and businesses, the prime minister will add: “Beating inflation has to be the priority … because if we don’t get a grip on inflation now, the damage will be worse and longer lasting.”
The UK has an inflation problem. Officials had hoped the rising cost of goods and services would have been brought to heel by now, as soaring energy costs fuelled by the war in Ukraine have cooled.
The Office for National Statistics said inflation, as measured by the consumer price index, held steady at 8.7 per cent in the year to May. Expectations were that the rate would fall a to 8.4 per cent.
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And there was more. Britain’s measure of underlying inflation that excludes volatile items, such as energy and food, took investors by surprise by accelerating for a second month in a row in May, hitting 7.1 per cent, up from 6.8 per cent in April. Higher core inflation is seen as a sign that price growth is more likely to remain persistently high.
<img class="img-sized__img landscape" loading="lazy" alt="UK inflation remains unchanged at 8.7% in May.” width=”720″ height=”693″ src=”https://www.wellnessmaster.com/wp-content/uploads/2023/06/so-why-exactly-is-inflation-higher-in-britain-than-in-the-us-and-europe-2.jpg”>
UK inflation remains unchanged at 8.7% in May.
Anadolu Agency via Getty Images
It looks certain that the independent Bank of England will raise the cost of borrowing again on Thursday for the 13th month in a row – the only question is whether it’s by 0.25 percentage points, or a symbolic half percentage point to 5%.
Don’t other countries have inflation under control?
Britain’s inflation rate has stayed far above price growth in the US and elsewhere in Europe. Although 8.7% is down from a peak of 11.1% last October, it leaves the UK with the highest inflation rate among the G7 advanced economies. By comparison, inflation stood at 4% in the US and 6.1% across the 20 EU countries that use the euro currency.
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Last week, the Federal Reserve – America’s equivalent of the Bank of England – ended a 15-month streak of hiking interest rates, a pause that currently seems highly unlikely in the UK.
The surging cost of food
Britain has had western Europe’s highest rate of inflation for food, with prices up more than 18 per cent over the past year, down only slightly from a recent peak of more than 19 per cent, the highest since 1977.
Freak weather has affected crops around the world, pushing up prices for many countries. But Britain is the world’s third largest net importer of food and drink, according to the Food and Agriculture Organisation of the United Nations – behind only China and Japan – leaving it particularly exposed.
Industry data published on Tuesday showed British grocery inflation eased slightly for the third month in a row in June.
Bank of England governor Andrew Bailey said last month that British food producers may have locked in higher costs than the central bank had anticipated, explaining some of its underestimate of inflation.
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Heavy reliance on natural gas
Britain is highly reliant on imported gas to generate electricity, exposing it to the full force of the surge in gas prices last year after Russia’s invasion of Ukraine.
The way Britain regulates energy prices for domestic and business users – it announces changes to maximum tariffs on a quarterly basis – means that international price rises are slower to push up inflation than in many other countries but falls are also slower to feed through into bills for users.
Brexit
Exiting the European Union and its single market at the start of 2021 has started to have an impact. Although an agreement between the UK and the bloc allows largely tariff-free trade in goods, there are barriers to exports and imports in the form of paperwork which have caused delays and higher costs.
Meanwhile, the end of free movement of workers from EU countries has contributed to an acute shortage of staff for many employers, pushing up wages and ultimately prices for consumers.
Bank of England decision-making
Some economists think the Bank, which is tasked with keeping inflation at around 2%, was too slow in starting to raise interest rates and is now playing catch-up.
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Its own monetary policy committee rate-setter member, Chaterine Mann, said in February that the Bank should have started raising interest rates earlier (“a greater degree of front-loading” was needed) and is now paying the price.
The price of your average grocery bill has increased again – this time to a new high of 12.4% just ahead of Christmas.
The price of food has been one of the primary drivers of the cost of living crisis, along with the soaring energy bills.
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Now, new data from the British Retail Consortium (BRC) shows that food inflation has increased from 11.6% last month to 12.4% for November – a new record since the stats started being collected back in 2005.
The current rate of food inflation is 7.4% higher than this time last year, too.
The BRC-Nielsen IQ Shop Price Index has also revealed that fresh food has climbed in price by the largest amount – last month, it was 13.3% inflation, now it is at 14.3%.
Eggs, dairy and meat have been some of the largest drivers of the increase in cost. Coffee prices have climbed too, due to high input costs.
The BRC also predicted that winter will look “increasingly bleak as pressures on prices continue unabated”, even though the Bank of England has predicted that they may start to fall again in 2023.
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Food inflation is one of the primary drivers of the cost of living crisis
According to PA news agency, Mike Watkins, the head of retailer and business insight at NielsenIQ said: “WIth prices still rising, the cost of Christmas will be higher this year and shoppers will be managing their budgets more closely than at any time since the start of the cost of living crisis.
“Retailers are now responding by offering seasonal savings and price cuts and will be hopeful of an uptick in shopper spend as we move into December.”
The governor of the Bank of England, Andrew Bailey, also warned in August that people were going to see an “apocalyptic” rise in prices.
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According to market research company Kantar, the average household was already facing a £643 climb in their annual grocery bill to £5,625 if they were to carry on buying the same items last month.
These new stats show food inflation is actually higher than the average inflation rate right now, as this stands at 11.1%.
The chair of Marks & Spencer, Archie Norman, said back in May that one of the reasons food prices are rising so much is because of the supply chain issues and surging energy costs triggered by the Ukraine war.
“What’s happening is global prices are rising, it’s not to do with UK food so much as the effect of freight costs, wheat prices, oil and energy prices knocking onto almost everything,” Norman explained.
“As a consequence, all food retailers in the UK are – because we operate on very thin margins – going to have to reluctantly allow some food price inflation to run through the system.”
