How the UK’s soaring inflation compares to other developed countries
The UK is suffering the highest levels of inflation seen in decades with prices rising faster than in any other G7 nation.
While all advanced economies are experiencing rising prices, with European nations worst hit, the UK is the only G7 country seeing inflation in the double digits.
The UK inflation crisis explained in 10 points
UK inflation is at its highest since the 1980s. Consumer price inflation (CPI) hit 10.1% in the year to July 2022, up from 9.4% in June. This means goods that would have cost £100 a year ago would cost £110.10 now.
Soaring energy bills are a significant factor driving up inflation in the UK. The average bill increased by 54% in April 2022, when Ofgem increased the energy price cap. The cost of energy will spike by a further 80% in October when the cap rises again.
The rising cost of food is also driving up UK inflation. According to the ONS, food prices have risen by 12.7% in a year, the highest since the financial crisis of 2008. This is particularly worrying for poor households, who spend a higher proportion of their income on groceries.
How much worse is it going to get? According to the Bank of England's most recent forecast, CPI is set to hit 13.3% by the end of 2022. Other analysts put the figure even higher, with investment bank Goldman Sachs warning inflation could surge above 20% if gas prices fail to fall.
The UK is not alone in seeing high inflation. Prices are rising across Europe as a result of spiking energy costs, exacerbated by Vladimir Putin's decision to cut gas supplies to the continent. Inflation across the eurozone as a whole hit 9.1% in the year to August 2020.
However, the UK remains the only G7 country to experience double digit inflation. Italy has the next highest at 9%, followed by Germany at 8.8%. Japan has the lowest inflation in the G7 at 2.6%.
Why is the UK so badly hit? One reason is that the UK imports much of its energy, leaving the economy exposed to rising global prices. Britain is also heavily reliant on gas, which is used to generate 40% of electricity. In contrast, France gets 70% of its energy from nuclear.
Government policies also make a difference. European countries including Spain, France and Portugal have capped gas prices, keeping inflation lower. While the UK has outlined support to help with bills, such as a £400 payment per household, these measures don't influence the CPI rate.
Brexit too has had an impact. Sterling has remained weak since the 2016 referendum, making imported goods more expensive. According to think tank UK in a Changing Europe, trade barriers with the EU have pushed up food prices by 6%.
Spiralling inflation presents a vast challenge. One report by University College, London says poverty caused by soaring prices will cause thousands of deaths among people unable to heat their homes. In the face of such stark warnings, it seems more help to cushion the blow of the cost of living is inevitable.
