THE UK certainly looks to be burnishing its credentials for being adjudged the “sick man of Europe”, a tag bandied about fairly or otherwise in relation to the economy back in the 1970s when Labour’s James Callaghan was prime minister.
Throughout the UK’s current cost-of-living crisis, the Conservatives have been at pains to portray the surge in inflation as something entirely outside of their control, not home-grown in any way but rather the result of global factors.
The truth will out though, to harness a phrase featuring in William Shakespeare’s Merchant of Venice. And anyone who has fallen hook, line and sinker for the Tories’ tall tales might want to take a look at inflation in the UK relative to that in the eurozone and the US.
Of course, basic economics, common sense, and what people can hear and see for themselves have all run counter to the Conservative Brexiters’ claims.
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The fact of the matter is that Brexit has been a very major burden for people in the UK, in terms of their cost of living.
Leaving the EU added an average of £210 to household food bills over the two years to the end of 2021, costing UK consumers a total of more than £5.8 billion, research published in December by the Centre for Economic Performance (CEP) at The London School of Economics showed. The research confirmed the price of food products had increased by 6% as a result of leaving the European Union.
We must also remember that sterling is now much weaker than it was before the Brexit vote in June 2016.
On June 23, 2016, just ahead of the EU membership referendum result becoming clear, the pound was trading above €1.30. It was yesterday afternoon trading just below €1.135.
Against the greenback, sterling was on June 23, 2016 trading close to $1.50. It is now trading around $1.245.
Simply, a weaker currency makes imports of everything from food to cars more expensive, fuelling overall inflation.
A weak pound has also made it much more expensive than pre-June 2016 for people in the UK to holiday in Europe, the US, and many other overseas countries.
And there has been plenty of anecdotal and survey evidence showing many suppliers in the European Economic Area are far less keen to sell into the UK market now given the bureaucracy arising from the loss of frictionless trade between the UK and EEA triggered by Brexit.
Guy Singh-Watson, founder of Devon-based organic vegetable box company Riverford, declared earlier this year: “I can tell you as having a farm in France, the reason people don’t want to export to the UK is that we’re a customer of last resort because we’re such a pain...to deal with because the paperwork is so silly with Brexit.
“It’s expensive, time-consuming and it involves a loss of flexibility that most businesses, if they can avoid, will, so they do.”
A survey in March from Make UK, formerly the Engineering Employers’ Federation, showed 48% of EU suppliers are now more cautious about supplying the UK. That is a stark finding indeed.
Meanwhile, the UK’s labour and skills shortages crisis, arising in large part from the loss of free movement of people between the UK and EEA, has fuelled wage inflation as well as restraining economic growth potential.
Obviously, there have been global factors at play in the inflation crisis, with energy prices surging with the reopening of the global economy as countries emerged from the coronavirus pandemic. Russia’s invasion of Ukraine exacerbated the energy price crisis hugely, as well as causing major problems in the food supply chain.
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However, it would seem fair enough, in assessing the validity of the Brexiters’ claims that inflation is not in any way a peculiarly British problem, to compare the surge in prices in the UK with what is happening in other countries. The Conservative Government and Brexiters more generally continue to paint a picture that leaving the EU has come at no cost to the UK or its people. Nothing, of course, could be further from the truth.
The Brexiters are all about whataboutery when it comes to inflation – arguing that it is just as bad everywhere else as in the UK.
Figures published on Wednesday showed the UK had turned in the highest March inflation reading in Western Europe.
The Office for National Statistics said annual UK consumer prices index inflation was 10.1 per cent in March. This was down from 10.4% in February but still more than five times the 2% target set for the Bank of England by the Treasury. The March reading was also much higher than both the 9.8% forecast in a poll of economists by Reuters and the 9.2% prediction made by the Old Lady of Threadneedle Street in February. So it was hardly a surprise that the latest bad news on the UK inflation front fuelled expectations of a further rise in UK base rates from their current 4.25%. Base rates were at a record low of 0.1% as recently as December 2021.
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If you listen to the Brexiters, you might well think inflation was in double-digit percentages everywhere else. This is not the case. Annual eurozone inflation for March, on the harmonised index of consumer prices (HICP) measure, is estimated at 6.9%, down from 8.5% in February. Annual consumer prices inflation in France is 5.7%. In Germany, it is 7.4%. In Ireland, it is 7.7% on the Central Statistics Office’s consumer prices index measure and 7% on the EU HICP gauge. Annual consumer prices inflation in the US in March was 5%, less than half of the UK’s reading.
Of course, the inflation numbers for these other countries are high by recent historical standards, flagging significant global pressures. However, it is crystal clear these readings are all significantly less bad than the UK’s dire inflation rate.
With base-year effects, UK inflation is expected to fall back sharply, but we must remember this would only mean prices were rising at a less-steep pace, with the previous increases baked in permanently.
And it is crucial to look at the inflation rate in the UK relative to that in other countries - all the more so given the smokescreen emanating from the Conservative Government on this front.
The numbers tell a clear story – one in which the UK has a good claim to the title of the “sick man of Europe” under the Tories, nearly a half-century on from when the tag was applied by some to the country under Labour.
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