How Britain’s inflation became the ‘worst in the G7’

UK feels pain of double-digit price rises for the first time since 1982

A man shopping
UK food prices rose by 12.7% in the year to July, driving up inflation overall
(Image credit: SolStock)

The UK is suffering higher inflation than any other G7 country as price rises reach a 40-year record.

Britain’s consumer price inflation hit 10.1% in the year to July, the “biggest leap” since 1982 and “well ahead” of the rate in fellow members of the group of advanced economies, said The Daily Telegraph.

The double-digit increase “exceeded economists’ expectations” that the UK rate would “edge up” to 9.8%, said the Financial Times, and “highlights the difficult task” that the Bank of England (BoE) faces in trying to tackle the inflation crisis.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

What is driving inflation?

High food prices were the “main driver of the spike”, which rose at an annual rate of 12.7% in July, up from 9.8% in June, said Politico.

According to figures from the Office for National Statistics (ONS), the annual rate of inflation for food and non-alcoholic beverages has not been this high since August 2008, during the global financial crisis, when it reached 13.2%.

The CPIH (the Consumer Prices Index including owner occupiers’ housing costs) has also risen by 8.8% in the 12 months to July 2022, up from 8.2% in June. The largest contributor to that increase came from electricity, gas and other fuels, transport, and food and drink, said the ONS.

The increases are set to “pile more pressure on consumers already facing the steepest real pay cut on record”, said The Telegraph, which added that the rises “come ahead of another jump in energy bills this winter”.

How does the UK compare with the G7 and rest of Europe?

While “all advanced economies” have seen a rise in inflation, it has been “stronger in the UK than in other G7 countries and most European nations”. said the FT. This is due to the UK’s “greater use of gas, the underlying strong growth in spending last year, pay growth in the private sector rising above 5% and the ease with which companies expect to pass on higher costs to customers”, explained the paper.

In other G7 nations, American and German inflation stands at 8.5%, while Italy’s rate is 8.4%, Canada is at 7.6%, France on 6.8%, and Japan on 2.4%.

Speaking to The Telegraph, Martin Beck, chief economic adviser to the EY Item Club, said that the UK is facing a combination of the pressures found in America, as well as those in the eurozone, ultimately resulting in higher inflation than either.

Beck explained that the UK was suffering from both America’s “excess demand for workers” combined with Europe’s “massive energy bill issues”, which have combined to give us the “worst of both worlds when it comes to inflation”.

“Different countries have different policies in place when it comes to holding down energy bills. The UK approach is more to give households direct support, like cash, when countries like France have done more in holding bills down directly,” Beck added.

With inflation set to peak at 13% later this year, according to predictions from the BoE, financial experts expect the Bank to raise interest rates again, with another 0.5% hike expected next month.

Debapratim De, a senior economist at Deloitte, told Yahoo Finance: “With inflation above 10% and widely expected to rise further as energy bills increase, base interest rates look fairly low at 1.75%. We expect swift action from the BoE with the base rate potentially doubling by this time next year.”

Continue reading for free

We hope you're enjoying The Week's refreshingly open-minded journalism.

Subscribed to The Week? Register your account with the same email as your subscription.