While inflation has been steadily declining in Europe and the US, it remains stubbornly high in the UK. “After Brexit, the British economy will be less able to adjust to big shocks,” says economist Stefan Koopman.
Despite expectations that inflation would ease slightly, it stopped at 8.7% in May. Exactly the same amount as a month earlier. The causes of inflation in the UK are no different than ours, says Koopman, a UK and Brexit economist at Rabobank, “these are the pandemic and war.” But the reason it’s not declining as fast as elsewhere has to do with Brexit. “As a result, supply within the economy has become much smaller, making it less able to adjust to big shocks.”
“Because of Brexit, supply within the UK economy has become much smaller, making it less able to adjust to big shocks.”
Who pays the costs?
Furthermore, according to Koopman, there is an ongoing debate in the UK about who should bear the brunt of the inflation burden. “The question is, who pays the highest costs. It could be employers, with lower profits. Or office workers, with lower salaries. That conflict is ongoing and the hot potato continues to be pushed. Until the discussion is resolved, inflation will remain high.’
Koopman speculates that the British central bank, the Bank of England (BOE), will raise interest rates by 25 basis points tomorrow, as expected. “There’s also speculation that it could be 50 basis points, but that would be a panic kick.”
Short-term mortgages
Due to the increase in interest rates, the economist is increasingly concerned about British families. There are many short term mortgages out there in the UK. ‘Think of households in their 30s-40s who bought a home at high prices and are now facing an interest rate revision of around 2.5-6%. It’s only a few hundred pounds a year. Those will be the groups where the shots will fall.
Source: BNR
Sharon Rock is an author and journalist who writes for 24 News Globe. She has a passion for learning about different cultures and understanding the complexities of the world. With a talent for explaining complex global issues in an accessible and engaging way, Sharon has become a respected voice in the field of world news journalism.
