LONDON, July 11 (Xinhua) -- There are several reasons why inflation in the United Kingdom (UK) remains stubbornly high, including soaring services inflation, higher wages and the impact of Brexit, an expert has said.
The first is a pass-through from the original sources of inflation, which are energy and food prices, into what is commonly called core inflation, and that is particularly visible in the services sector, Professor Iain Begg at the London School of Economics and Political Science has told Xinhua in a recent interview.
UK inflation rose by 8.7 percent year-on-year in May, unchanged from April, official data showed. Food price inflation remained high, but the rate eased slightly. The core consumer price index, excluding energy, food, alcohol and tobacco, rose by 7.1 percent, reaching its highest level since March 1992.
"Also, we're seeing some pressure from wages because wages have been trying to keep pace with the rate of inflation, especially in the private sector. We've seen a succession of strikes in the public sector, which has led in some cases to increases in wages, but wages are still lagging behind inflation," Begg said.
Growth in UK employees' average regular pay, excluding bonuses, was 7.3 percent in March to May, and this equals the highest growth rate, which was also seen during the COVID-19 pandemic in 2021, the Office for National Statistics (ONS) said on Tuesday. Adjusted for inflation, however, regular pay fell by 0.8 percent.
"Then you've got an element in the UK case which is very specific, and that is higher prices resulting from being outside the European Union and therefore having to pay more for certain commodities than we were used to," Begg said.
High inflation that arose towards the end of 2021 and endured through 2022 was caused by external factors, initially by the effects of higher energy prices, and that triggered something which central banks had not been used to dealing with in the previous decades, he said.
In what someone might call supply shock inflation, "central bankers weren't really that well equipped for it. They thought it was temporary and they therefore delayed acting to cool down the economies," the professor explained.
Having said all that, he told Xinhua that inflation is now trending down, albeit at a slower pace than what the government has anticipated.
"The catch is that this could well mean recession ... And that is a high wire balancing act that no government wants to be dealing with," Begg said.
In the next 12 months, the UK economy is going to struggle to grow because it is not that obvious where a stimulus to growth could come from, he said. "The UK is probably facing a difficult period for at least the next 18 months."
