In the UK, inflation remains at very high levels. Consumer prices rose by 9.1 percent in May, reports the statistics authority. In the month before it was also nine percent. It’s been 40 years since such values were last seen on the island.
Food plays a significant part in the jump. Bread, cereal flakes and meat in particular have become more expensive. Added to this is the sharp increase in the cost of fuel, which has become a third more expensive than in the previous year.
Real estate prices also continue to rise significantly, despite the five interest rate hikes in recent months to 1.25 percent. They have increased to the national average of 281,000 pounds or the equivalent of 327,000 euros within one year, which is an increase of 12.4 percent.
And the trend continues. “There is no sign yet that inflation is slowing down,” said Yael Selfin, the UK’s chief economist at consultancy KPMG. Even if energy and fuel show the clearest jumps in the latest data, that cannot hide the fact that prices are pointing higher across the economy. The British central bank does not see the turnaround yet. The monetary authorities made it clear last week that they expect prices to increase by more than eleven percent in the fall.
The price increases are making life difficult for consumers in the country. Urvish Patel, an economist at the National Institute of Economic and Social Research (NIESR), reckons that 1.2 million households will still have to bear the cost of food despite the relief announced by Finance Minister Rishi Sunak, such as subsidies for energy costs and reduced local taxes for financially weak households and energy are higher than income.
This data should now inevitably fuel calls for higher wages. The government recently called on workers to exercise moderation in order not to further increase inflationary pressures and make tax cuts more difficult in the future.
But commentators never tire of reminding Prime Minister Boris Johnson that just eight months ago he promised an “economy with high wages and high standards of education”. Johnson has also just decided to increase pensions by ten percent, which weakens the argument that restraint is necessary.
The biggest rail strike since the late 1980s started in Great Britain on Tuesday, called for by the transport union RMT. In addition to avoiding layoffs, significant wage increases are among the central demands. In some parts of the country, less than 20 percent of the timetable could be served on the day of the strike, large regions in the south-west were completely cut off from the rail network, as were Wales and Scotland. Both sides are now negotiating further. According to the current status, there will be another strike on Thursday and Saturday. If an agreement is not reached, further strikes will follow over the summer, RMT representatives threatened.
But labor disputes are also emerging in other sectors. The NHS health service and Royal Mail, for example, are threatened with strikes for higher wages. In addition, the leadership of the National Education Union (NEU), in which teachers are organized, has just handed over its demands to Minister of Education Nadhim Zahawi. “They must respond to the new economic reality of double-digit inflation and the impact it is having on teachers. We call on you to commit to an above-inflation rise [in wages] for all teachers,” reads the letter. Such a signal for the appreciation of the teaching staff is overdue.
After years of austerity, the wage level had fallen to its lowest level in over 40 years, argued the NEU. It is becoming increasingly difficult to recruit and retain teachers. A second teachers’ union also made clear wage demands this week. Both threaten ballots if the government does not meet them. The government has now announced a wage increase of three percent for the education sector.
Meanwhile, there are concerns that it will be a long time before price developments are under control again. 46 percent of the members of the employers’ association Institute of Directors expect that inflation will still be well above the 2 percent target of the Bank of England (BoE) in two years.
The situation does not offer good prospects for the British economy. “Persistently high inflation and a projected mild recession by year-end 2022 mean the BoE’s monetary policy committee remains on shaky ground, with an increased risk of deepening the recession if interest rates hike too significantly,” warned NIESR- Economist Patel.
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