London Daily

Focus on the big picture.
Monday, Sep 01, 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
Chinese and Indian Leaders Pursue Amity Amid Global Shifts
European Union Plans for Ukraine Deployment
ECB Warns Against Inflation Complacency
Concerns Over North Cyprus Casino Development
Shipping Companies Look Beyond Chinese Finance
Rural Exodus Fueling European Wildfires
China Hosts Major Security Meeting
Chinese Police Successfully Recover Family's Savings from Livestream Purchases
Germany Marks a Decade Since Migrant Wave with Divisions, Success Stories, and Political Shifts
Liverpool Defeat Arsenal 1–0 with Szoboszlai Free-Kick to Stay Top of Premier League
Prince Harry and King Charles to Meet in First Reunion After 20 Months
Chinese Stock Market Rally Fueled by Domestic Investors
Israeli Airstrike in Yemen Kills Houthi Prime Minister
Ukrainian Nationalist Politician Andriy Parubiy Assassinated in Lviv
Corporate America Cuts Middle Management as Bosses Take On Triple the Workload
Parents Sue OpenAI After Teen’s Death, Alleging ChatGPT Encouraged Suicide
Amazon Faces Lawsuit Over 'Buy' Label on Digital Streaming Content
Federal Reserve Independence Questioned Amid Trump’s Push to Reshape Central Bank
British Politics Faces Tumultuous Autumn After Summer of Rebellions and Rising Farage Momentum
US Appeals Court Rules Against Most Trump-Era Tariffs
UK Sought Broad Access to Apple Users’ Data, Court Filing Reveals
UK Bank Shares Dive Over Potential Tax on Sector
Germany’s Auto Industry Sheds 51,500 Jobs in First Half of 2025 Amid Deepening Crisis
Bruce Willis Relocated Due to Advanced Dementia
French and Korean Nuclear Majors Clash As EU Launches Foreign Subsidy Probe
EU Stands Firm on Digital Rules as Trump Warns of Retaliation
Getting Ready for the 3rd Time in Its History, Germany Approves Voluntary Military Service for Teenagers
Argentine President Javier Milei Evacuated After Stones Thrown During Campaign Event
Denmark Confronts U.S. Diplomat Over Covert Trump-Linked Influence in Greenland
Starmer Should Back Away from ECHR, Says Jack Straw
Trump Demands RICO Charges Against George Soros and Son for Funding Violent Protests
Taylor Swift Announces Engagement to NFL Star Travis Kelce
France May Need IMF Bailout, Warns Finance Minister
Chinese AI Chipmaker Cambricon Posts Record Profit as Beijing Pushes Pivot from Nvidia
After the Shock of Defeat, Iranians Yearn for Change
Ukraine Finally Allows Young Men Aged Eighteen to Twenty-Two to Leave the Country
The Porn Remains, Privacy Disappears: How Britain Broke the Internet in Ten Days
YouTube Altered Content by Artificial Intelligence – Without Permission
Welcome to The Definition of Insanity: Germany Edition
Just a reminder, this is Michael Jackson's daughter, Paris.
Spotify’s Strange Move: The Feature Nobody Asked For – Returns
Manhunt in Australia: Armed Anti-Government Suspect Kills Police Officers Sent to Arrest Him
China Launches World’s Most Powerful Neutrino Detector
How Beijing-Linked Networks Shape Elections in New York City
Ukrainian Refugee Iryna Zarutska Fled War To US, Stabbed To Death
Elon Musk Sues Apple and OpenAI Over Alleged App Store Monopoly
2 Australian Police Shot Dead In Encounter In Rural Victoria State
Vietnam Evacuates Hundreds of Thousands as Typhoon Kajiki Strikes; China’s Sanya Shuts Down
UK Government Delays Decision on China’s Proposed London Embassy Amid Concerns Over Redacted Plans
A 150-Year Tradition to Be Abolished? Uproar Over the Popular Central Park Attraction
×