Saturday, February 4, 2023

UK Inflation Slows Amid Ongoing Crisis

Inflation slowed to 10.5% year on year in the UK in December from 10.7% in November but remains at historically…

By Editorial , in Business , at January 19, 2023

Inflation slowed to 10.5% year on year in the UK in December from 10.7% in November but remains at historically very high levels, fueling a cost of living crisis in the country.

Transport and in particular fuels largely contributed to the decline in prices last month, but also clothing and shoes, or even entertainment and culture, despite the end-of-year celebrations, adds the National Statistics Office (ONS ) in a report on Wednesday. On the other hand, the prices of hotels, plane tickets and restaurants increased, as did those of food and non-alcoholic beverages, which slowed down the fall in prices.

“High inflation is a budget nightmare for families, destroys business investment and generates strikes, so even if it is difficult, we must stay on course to bring it down,” commented Finance Minister Jeremy Hunt in a statement. “We have a plan to halve inflation this year, reduce debt and grow the economy, but it is crucial to make the tough decisions necessary,” he insisted. Strikes are multiplying in the country in many sectors such as transport, education or health, the unions demanding wage increases in line with inflation. Wages are indeed increasing at the fastest pace for several decades but in real terms they are shrinking, eaten up by inflation. The government for the moment refuses to accept the demands of the strikers, claiming that it does not want to fuel a lasting vicious circle of rising prices. Opposition Labor Finance Leader Rachel Reeves lamented “13 years of lost opportunity under the Tories which have left our economy weaker and families in dire straits”.

Soaring Food Prices

The UK economy is on the brink, or even already in recession, according to many forecasters. However, it did a little better than expected in November. Britain’s gross domestic product (GDP) edged up 0.1% in November, following a 0.5% rise the previous month. But looking at the three months to the end of November together, the economy contracted 0.3% from the previous three months, the ONS said on Friday. Economists said Wednesday that the slight deceleration in inflation does not mean that the Bank of England has won the war. Capital Economics expects it to raise its key rate from 3.50% to a peak of 4.50% in the coming months.

The think tank notes the rapid slowdown in fuel prices but is concerned about inflation in services and food, at 16.8%, “the highest since September 1977”. A study by consumer organization Which! published on Wednesday also notes that the price increase in supermarkets, even at low prices, has soared to 30% on certain basic food items in the country. “The cost of living crisis continues and today’s figures do not change much”, and the government “continues to want workers to pay for a crisis that is not their fault”, commented the union Unite. Some economists believe, however, that prices have turned a corner. Pantheon Macro expects UK inflation to slow to 9.0% in March and further in April “as the fall in commodity and sea freight prices over the past six months spills over into food and goods”.

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