London Daily

Focus on the big picture.
Thursday, Oct 16, 2025

Why does the UK have the highest inflation in the G7?

Why does the UK have the highest inflation in the G7?

Analysis: UK among hardest-hit countries thanks to perfect storm of war in Ukraine, Covid and Brexit

Britain’s inflation rate has soared to the highest level since the early 1980s. After a record increase in gas and electricity bills in April, inflation is the highest in the G7. Having reached 9% last month, it is above the 8.3% rate in the US and Germany’s 7.4%. Japan, an economy characterised by low inflation for decades thanks to an ageing population, has the lowest rate at 1.2%.


Here are some of the reasons why prices are rising faster in the UK than in other major economies.


Energy


Britain is a net importer of energy, meaning it is exposed to global price shocks. The post-lockdown surge in oil and gas prices, exacerbated by Russia’s war in Ukraine, is no exception. However, some other countries have done more in response.

France has a 4% cap on electricity price rises, helped by state ownership of the energy producer EDF. The country also sources the majority of its energy needs from nuclear.


UK gas prices remain high despite falling back from record levels

Italy has a windfall tax on energy firms and is spending €8bn (£6.8bn) to shield consumers from higher bills. Spain and Portugal are capping gas prices after winning approval from the EU. Germany has cut fuel tax by 30 cents a litre, compared with a Britain’s 5p cut. Ireland has cut public transport fares by 20%, while Spain and Belgium have cut VAT on energy bills – something Boris Johnson claimed could be done after Brexit, but has failed to enacted.

The UK government has announced £22bn of support for high energy costs for the current financial year, including cuts to fuel duty, a council tax rebate and repayable loans on energy bills. The measures do not, however, influence the headline inflation rate.

Labour says the UK is the only country in the G7 where the government is raising taxes in the middle of the cost of living crisis, after the chancellor, Rishi Sunak, pushed through an increase in national insurance contributions last month.


Brexit and a slump in the pound


Britain is a highly open economy with total trade equivalent to 60% of GDP. The UK’s manufacturing base is also smaller than countries such as Germany and Italy.

Disruption from the pandemic, along with China’s “zero Covid” policy, has pushed up freight prices and caused costly delays. However, companies in Britain face additional costs from Brexit, with reams of paperwork and border delays adding to the pressure.


The EU accounts for about half of total imports. Though just under half of food consumed in Britain is produced domestically, including the majority of grains, meat, dairy, and eggs, much comes from the EU.

The thinktank UK in a Changing Europe estimated post-Brexit trade barriers pushed up food prices by 6% between December 2019 and September 2021.

The pound has slumped in recent months, dropping to the lowest level against the US dollar since the early days of the pandemic. This will add to inflation by driving up the cost of imports.


Worker shortages


Fewer foreign workers are seeking jobs in the UK after Brexit, while many older people left the workforce during the pandemic. Labour shortages are leading companies to increase pay, adding to their wage bills, and leading them to raise the prices they charge for goods and services.

Unemployment has fallen to the lowest level since the mid-1970s, with the number of people out of work below the number of vacancies for the first time ever. Annual average pay growth, excluding bonuses, has risen to 4.2%, among the fastest rates for a decade.


The Bank of England believes domestically generated inflation is higher in Britain than in the EU, where wage growth in the year to the final quarter of 2021 was 1.6%. However, it is less pronounced than in the US, where one measure of wage growth hit a record high of 6% in March.

However, average pay growth is still failing to keep pace with the soaring cost of living.

Newsletter

Related Articles

0:00
0:00
Close
Australian Punter Archie Wilson Tears Up During Nebraska Press Conference, Sparking Conversation on Male Vulnerability
Australia Confirms U.S. Access to Upgraded Submarine Shipyard Under AUKUS Deal
“Firepower” Promised for Ukraine as NATO Ministers Meet — But U.S. Tomahawks Remain Undecided
Brands Confront New Dilemma as Extremists Adopt Fashion Labels
The Sydney Sweeney and Jeans Storm: “The Outcome Surpassed Our Wildest Dreams”
Erika Kirk Delivers Moving Tribute at White House as Trump Awards Charlie Presidential Medal of Freedom
British Food Influencer ‘Big John’ Detained in Australia After Visa Dispute
ScamBodia: The Chinese Fraud Empire Shielded by Cambodia’s Ruling Elite
French PM Suspends Macron’s Pension Reform Until After 2027 in Bid to Stabilize Government
Orange, Bouygues and Free Make €17 Billion Bid for Drahi’s Altice France Telecom Assets
Dutch Government Seizes Chipmaker After U.S. Presses for Removal of Chinese CEO
Bessent Accuses China of Dragging Down Global Economy Amid New Trade Curbs
U.S. Revokes Visas of Foreign Nationals Who ‘Celebrated’ Charlie Kirk’s Assassination
AI and Cybersecurity at Forefront as GITEX Global 2025 Kicks Off in Dubai
DJI Loses Appeal to Remove Pentagon’s ‘Chinese Military Company’ Label
EU Deploys New Biometric Entry/Exit System: What Non-EU Travelers Must Know
Australian Prime Minister’s Private Number Exposed Through AI Contact Scraper
Ex-Microsoft Engineer Confirms Famous Windows XP Key Was Leaked Corporate License, Not a Hack
China’s lesson for the US: it takes more than chips to win the AI race
Australia Faces Demographic Risk as Fertility Falls to Record Low
California County Reinstates Mask Mandate in Health Facilities as Respiratory Illness Risk Rises
Israel and Hamas Agree to First Phase of Trump-Brokered Gaza Truce, Hostages to Be Freed
French Political Turmoil Elevates Marine Le Pen as Rassemblement National Poised for Power
China Unveils Sweeping Rare Earth Export Controls to Shield ‘National Security’
The Davos Set in Decline: Why the World Economic Forum’s Power Must Be Challenged
France: Less Than a Month After His Appointment, the New French Prime Minister Resigns
Hungarian Prime Minister Viktor Orbán stated that Hungary will not adopt the euro because the European Union is falling apart.
Sarah Mullally Becomes First Woman Appointed Archbishop of Canterbury
Mayor in western Germany in intensive care after stabbing
Australian government pays Deloitte nearly half a million dollars for a report built on fabricated quotes, fake citations, and AI-generated nonsense.
US Prosecutors Gained Legal Approval to Hack Telegram Servers
Macron Faces Intensifying Pressure to Resign or Trigger New Elections Amid France’s Political Turmoil
Standard Chartered Names Roberto Hoornweg as Sole Head of Corporate & Investment Banking
UK Asylum Housing Firm Faces Backlash Over £187 Million Profits and Poor Living Conditions
UK Police Crack Major Gang in Smuggling of up to 40,000 Stolen Phones to China
BYD’s UK Sales Soar Nearly Nine-Fold, Making Britain Its Biggest Market Outside China
Trump Proposes Farm Bailout from Tariff Revenues Amid Backlash from Other Industries
FIFA Accuses Malaysia of Forging Citizenship Documents, Suspends Seven Footballers
Latvia to Bar Tourist and Occasional Buses to Russia and Belarus Until 2026
A Dollar Coin Featuring Trump’s Portrait Expected to Be Issued Next Year
Australia Orders X to Block Murder Videos, Citing Online Safety and Public Exposure
Three Scientists Awarded Nobel Prize in Medicine for Discovery of Immune Self-Tolerance Mechanism
OpenAI and AMD Forge Landmark AI-Chip Alliance with Equity Option
Munich Airport Reopens After Second Drone Shutdown
France Names New Government Amid Political Crisis
Trump Stands Firm in Shutdown Showdown and Declares War on Drug Cartels — Turning Crisis into Opportunity
Surge of U.S. Billionaires Transforms London’s Peninsula Apartments into Ultra-Luxury Stronghold
Pro Europe and Anti-War Babiš Poised to Return to Power After Czech Parliamentary Vote
Jeff Bezos Calls AI Surge a ‘Good’ Bubble, Urges Focus on Lasting Innovation
Japan’s Ruling Party Chooses Sanae Takaichi, Clearing Path to First Female Prime Minister
×