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With spiraling prices of food and transportation, the United Kingdom is experiencing 40-year high
inflation of 9%, exacerbating the country’s cost of living crisis. The rising cost of living has been
exacerbated by the increasing cost of food and energy prices, impacting millions of low and middle-
income families. A 9% increase in the consumer price index is the greatest since records were
calculated in 1989, outpacing the 8.4% yearly increase in March 1992. The average petrol price
reached a new high of 161.8p per liter, up from 125.5p a year earlier. Another element contributing
to an increase in the consumer price index was diesel, which touched a record high of 176.1p per
liter, resulting in a 31.4 percent increase in motor fuels.
The conflict between Russia and Ukraine acted as an accelerant in increasing the rate of inflation in
the UK. The nation is a major energy importer and is vulnerable to worldwide price fluctuations. Oil
and gas costs have risen dramatically since the lockout, exacerbated by Russia’s war in Ukraine. Its
manufacturing base is also smaller than that of other European countries. The disruptions caused by
the Covid-19 pandemic have also led to a rise in freight charges and costly delays to occur, making it
harder to import goods from different countries. Companies in the UK, on the other hand, are facing
increased costs as a result of Brexit, with reams of paperwork and border delays adding to the stress.
The sharp decline in the value of the pound on the foreign exchange markets has increased the cost
of imports, thereby putting additional strain on firms. The Sterling has declined from over $1.30 to
$1.24, thereby increasing the inflation in the country. Due to the high rate of inflation in the country,
the unemployment rate is low, and the labor market strength, has led to high demand for wages by
labor, thereby trade-off between inflation and unemployment is visible in the UK economy.
Adding to this is an aspect of the recent political instability affecting the confidence of the business
houses in terms of making additional investments. The recent exit from the European Union and its
repercussion is said to be far from over as negotiations and disagreements continue to date. The
Ireland protocol has not been successful in terms of trading various items across borders and is in
talks for major amends. If this were to be in order, it could help ease the inflationary pressure in
terms of food prices and essentials.
The Bank of England is in charge of monetary policy, and other policies to control the economy of
the UK and maintain healthy and stable inflation rates. To combat this issue, the Bank of England
should raise the interest rate which people get from their savings since high-interest rates make it
more expensive for people to borrow and encourage them to save more. It will enable them to
spend less on consumption. Bank of England can influence the interest by basically increasing the
bank rate, also called the base rate, making it expensive for banks and people to borrow, secondly,
through open market operations i.e., through buying and selling of government bonds. Until now,
there's active participation from the government to control this high rate of inflation in the country.
If this situation would continue, the UK is expected to have the highest inflation among all the big
European economies, and according to the Bank of England, inflation would hike up to 10%,
exposing the economy to a more vulnerable situation.
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