Inflation in the UK has reached a 40-year high, why has this happened and how can the UK tackle it?
The UK inflation rate and the cost of living are rising at alarming rates. While the rate of the prices rising has dropped back just slightly, they still stand at a 40-year high. This is causing worry and misery to many of the British population. As a response, the Bank of England has increased interest rates to 4% which is the highest level for 14 years.
However, there is criticism that this isn’t enough. The surge of inflation has now been dubbed the cost-of-living crisis and is causing countless issues. Let’s dive into why this is happening and how it can be tackled to take the pressure off the UK public.
What does inflation mean?
Inflation is, in short, the increase in the cost of things as time goes on. Let’s use a loaf of bread as an example – if it originally costs £1 but then a year later the price for the same loaf of bread sits at £1.05, then the inflation of bread is at 5%. As time goes on, inflation is inevitable, especially in developing economies. As people gain better jobs and better wages, they spend more money, things go up in price, and wages begin to match the cost of living.
Inflation in the UK is measured by the Office for National Statistics (ONS), which continually keeps track of the prices of hundreds of everyday items. It is constantly updated and constantly measured.
What is the inflation rate in the UK?
To make better sense of the following statistics, it is important to point out that the optimal inflation rate is agreed to be around 2%. This is considered a stable inflation that helps to maintain a healthy economy, according to the Bank of England.
With this in mind, inflation in January 2023 was at 10.1%. Basic household necessities such as milk, cheese, eggs, and olive oil saw the largest increase. For example, milk has gone up 45.2% in price and olive oil 44.6%
Is this happening anywhere else?
This isn’t just happening in the UK, many other countries are unfortunately experiencing serve cost of living crises, too. Every country from Turkey, and Italy all the way to New Zealand and Sudan are experiencing devastating levels of inflation. Even in the most developed of countries, people are not struggling to buy food.
In the UK, 1 in 7 adults now cannot afford to eat every day. In Kenya, families have had to start cooking food with firewood instead of kerosene. In Bangladesh, 3.6 million people are struggling to find work. These horrendous stories exist globally.
Why is this happening?
The increasing cost of energy is a main factor in these current expansive inflation rates. After COVID-19, oil and gas were in greater demand as everybody began to return to their daily lives and travel again. However, the Ukraine War has meant that less oil and gas were available from Russia which put pressure on prices. The war has also pushed up the cost of food, especially as the amount of grain available has reduced dramatically.
Are wages upkeeping with inflation?
Wages are not keeping up with the dramatic spike in inflation. This is mainly what is causing the cost-of-living crisis. As prices continue to increase but wages don’t, people are struggling to find the extra money to pay for their daily items.
Wages have increased at their fastest rate in 20 years, but this still hasn’t been enough. Wages have increased by 6.7% in just a few months, but because of inflation, the average pay has statistically actually decreased.
The public sector is particularly affected by this and as a result, striking has become commonplace in the UK at the moment. The UK government has stated that increasing wages could potentially push inflation even higher.
How can this be tackled?
The Bank of England always has a target to keep inflation at just 2%. However, the current rate is still 5 times more than that right now. Hence why there needs to be a plan in action to tackle this.
It is a cycle that tends to solve itself in some cases, when people have less money to spend, they buy fewer things, which reduces the demand for goods, and slows down price increases.
The Bank of England has also increased interest rates for the tenth time in a row, which is hoped to help.
As this inflation is caused mainly by war and global energy prices, inflation is much harder to manage and predict.
The UK government has announced a pledge to half inflation by the end of this year, but any specific policies to achieve this has not been announced.