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Why does the UK have the highest inflation in G7?

Graham Watson

6th June 2023

This excellent Newsnight video from Ben Chu looks at why British inflation exceeds those of any other G7 country, with core inflation still 6.8% and still rising. So what factors contribute to this - and are they UK specific?

Well, farming in the UK is necessarily limited by scale, and the cost of importing has undoubtedly risen post-Brexit. The cost of manufacturing, particularly in labour-intensive sectors previously dependent upon migrant workers, is up as is the price of services, notably insurance.

Is Britain back to being the 'sick old man of Europe'? It currently looks like it. Not least because of the lasting effects of COVID on the British workforce. There has been a significant rise in economic inactivity.

Why does Britain have the worst inflation in the G7? - BBC Newsnight

IMF Chief Economist, Gita Gopinath, has suggested that higher levels of immigration might help keep UK inflation low. How dare she state economic sense!

Why is UK inflation higher than other G7 nations? Well, I'd have though that one very obvious reason is that the number of migrant workers in the UK has fallen post-Brexit and that this has put upwards pressure on wages, in some sectors more than others.

I doubt that hospitality and retail businesses will disagree with this assessment.

Please read: Immigration can help push down UK inflation, says IMF deputy


More evidence of shrinkflation, reported by Barclays, with two-thirds consumers noticing the phenomenon as they shop, and as a result many have altered their shopping habits, buying in bulk and reducing discretionary spending. This is something that is also reflected in retail sales figures.

Please read: Hard-pressed UK shoppers feel food ‘shrinkflation’

Shrinkflation refers to a phenomenon where the size or quantity of a product is reduced while its price remains the same or even increases. In other words, it is a tactic employed by manufacturers and retailers to maintain the appearance of stable prices while reducing the actual amount of product being offered.

Shrinkflation typically manifests in consumer goods, such as food items, household products, or packaged goods. Instead of directly increasing the price, companies reduce the size or quantity of the product, often without explicitly informing consumers. As a result, consumers end up paying the same amount or more for a smaller portion or quantity of the product.

The motivation behind shrinkflation can vary. Rising production costs, such as increased raw material prices or higher manufacturing expenses, may prompt companies to reduce the size of the product to maintain profit margins. In some cases, companies may choose to shrink products as a response to inflationary pressures without wanting to directly raise prices and risk losing customers.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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