London Daily

Focus on the big picture.
Friday, May 09, 2025

Why is inflation higher in the UK than in the EU?

Why is inflation higher in the UK than in the EU?

As the Bank of England hikes interest rates to keep prices in check, the UK's inflation rate remains worse than the EU's. Here's why.

The Bank of England has raised UK interest rates by a quarter of a percentage point to 4.5 per cent – the highest level since 2008.

It’s an attempt to lower the country’s inflation, which remains in the double digits, at 10.1 per cent as of March this year.

That's more than five times the Bank of England's 2 per cent inflation target and a higher rate than in any other major European economy. The EU's average inflation rate stood at 8.3 per cent in March.

But both the UK and the EU have been hit hard by the COVID-19 pandemic as well as by the effects of Russia’s invasion of Ukraine… So, what is going on?


1. Soaring food prices


Food prices in the UK are rising at the fastest rate since 1977, partly fuelled by salad and vegetable shortages over the past few months in the UK.

Due to extreme weather affecting Spain and Morocco, the main suppliers of vegetables such as lettuce and tomatoes have been mostly to blame.

Shortages have also been exacerbated by high energy prices leading to farmers cutting down on crop yields and heavily relying on imports for certain foods, as explained in this separate fact-check by The Cube.


2. An inflexible labour market


According to the BBC, while most major economies have recovered from the labour shortages caused by the COVID-19 pandemic, the UK still has about 400,000 more people not working than in December 2019.

For Jacob Kirkegaard, an economist at the German Marshall Fund, this is due to two reasons.

"There is a very high level of regional income inequality across the UK. Living in London is more expensive than living in most of the rest of the country, making it quite difficult for people to move to places with more economic activity," he told Euronews.

"So, you have increasing labour shortages in parts of the UK. Then, you've got a significant number of European citizens leaving the UK after Brexit. Even though non-EU immigration to the UK has increased, these workers may not possess the same level of skills.

"Overall, you have a less well-functioning labour market creating bottlenecks and the necessity for increasing wages, hence driving inflation".


3. Brexit


According to experts like Kirkegaard, inflation is also directly correlated to the UK leaving the European Union.

"The breaking up of all the traditional trade flows that the UK had with the rest of Europe is significant. This is particularly important on issues like fresh food and other products that usually the UK would import seamlessly from the rest of the EU. And now, of course, it's much more difficult. That creates scarcity which creates rising prices," he explained.


4. Gas prices


Rising energy prices hit UK households and businesses hard - harder than in other European countries.

According to Reuters, Britain's high rate of energy inflation shows it’s over-reliant on gas for heating homes. It also reflects the poor energy efficiency of its housing stock.

But Jacob Kirkegaard disagrees that energy prices are the main driver behind the UK's inflation rate.

"Natural gas prices in Europe today are not as high anymore. It is true that UK gas prices rose more than in many other European countries, but frankly, they should also have come down more in recent months," he said.

"The fact that this decline in energy prices has not caused the overall level of inflation to decline nearly as much as in the rest of the EU indicates that, in my opinion, the bigger issues today are not on gas, but in other parts of the UK economy," he added.


What's the inflation rate in other European countries?


Luxembourg has the lowest rate at just 2.7 per cent, followed by Belgium at 3.3 per cent, then Cyprus and Spain both which have a rate of 3.8 per cent, according to Eurostat.

But there are EU countries performing worse than the UK. Hungary has an inflation rate of 25.6 per cent, the Czech Republic 16.5 per cent, followed by Poland at 15.2 per cent.

How did countries like Luxembourg, Belgium and Spain manage to keep their inflation rates lower than the UK?

"In the case of Spain, one of the main reasons for its lower level of inflation for a number of months is that they put a price cap on an important part of the energy sector. That was very effective in keeping the inflation level down," said Kirkegaard.

"The big reason why in the last six to nine months you've had such big differences in the level of inflation across particularly the euro area countries is that governments have implemented different variations of price controls on gas or electricity, and other countries haven't done that at all".

The Bank of England now expects inflation to fall to 5.1 per cent by the end of the year, which is less of a drop than the 3.9 per cent that was forecast back in February.

Newsletter

Related Articles

0:00
0:00
Close
Historic Papal Conclave Set to Commence in Rome
Huge Copper, Gold, and Silver Discovery in Argentina and Chile — But the Profits Go Abroad
Prince Harry is pleading for reconciliation — but the royals are just as sick of his victimhood as everyone else
The Road to Freedom: She Protested Putin, Escaped House Arrest, and Survived a 2,800-Kilometer Journey
OpenAI's Flip-Flop: No Longer Going Commercial, Back to Nonprofit, After Musk Lawsuit and Backlash
“Trump Supporter” Aims to Bring a MAGA-Style Shift to Romania
First From China: Zhao Xintong Wins the Snooker World Championship
Nvidia Faces Billion-Dollar Losses – Warns: China Is on Its Way to Becoming an AI Superpower
Trump Rules Out Third Term, Names JD Vance and Marco Rubio as Potential Successors
Mexico Says ‘No’ to U.S. Troops: President Sheinbaum Rejects Trump’s Offer to Fight Cartels
Nigel Farage’s Reform UK Storms the Map, Wrecking the Two-Party Monopoly
DOGE: Reimagining Government Operations with AI
Common Sense Returns to Britain's Legal System: UK Supreme Court Declares a Woman Is… a Woman
Beijing Says U.S. Is ‘Reaching Out’ for Tariff Talks Amid Soaring Trade Tensions
U.K. Court Rejects Prince Harry’s Final Appeal Over Police Security
Prince Harry’s Heartfelt Outburst Rocks the Royal Family
Trump Shares AI-Generated Image of Himself as… Pope, Prompting Outrage Reaction
Transgender Swimmer Secures Five Gold Medals at U.S. Masters Championship
Prince Harry: “I Want Reconciliation with My Family”
Germany's Alternative für Deutschland (AfD) party has now been officially labeled “right-wing extremist” by the federal office for the so-called “protection of the constitution.”
Amazon Launches Satellite Internet Service Amidst Competition with SpaceX
Transformative Changes in Women's Wrestling: The Rise of WWE Superstars
The Rush to the White Gold: Global Investment Surge in Natural Hydrogen Exploration
This is a day in Spain without electricity and internet
Reform UK Surprises in British Elections, Challenging Traditional Two-Party System
180-Year-Old Christian University in South Carolina Announces Closure Due to Unmet $6 Million Fundraising Goal
Brazilian Woman Jailed for Fourteen Years for Writing “You Lost, Idiot” on Statue During Protest
Trump Administration Removes National Security Adviser Mike Waltz Amid Signal Chat Controversy
Dutch Politician Eva Vlaardingerbroek Receives Spyware Threat Alert from Apple
Paramount Board Considers Settlement in Trump’s $20 Billion Lawsuit Over "60 Minutes" Interview
U.S. Economy Shrink in Trump’s First Quarter as Tariff Policy Raises Questions
Deadline Looms for RTS Meter Replacement: Hundreds of Thousands at Risk of Heating Disruption
Sweden Grapples with Deadly Gun Violence: Suspect Arrested After Three Young Men Killed in Uppsala Hair Salon
Walz Reveals Why Harris Chose Him as Her Running Mate and Reflects on Democratic Losses
Spain Restores Power After Unprecedented Nationwide Blackout
Carney Secures Liberal Mandate in Canada’s Federal Election
Death Penalty Sought as Luigi Manion Pleads Not Guilty in CEO Murder Case
President Trump contacts Jeff Bezos after reports of Amazon considering listing tariff surcharges; company clarifies no such plan for main platform
Spain and Portugal Recover from Massive Blackout
Liverpool Clinches Record-Equalling 20th English League Title Under Arne Slot
Singapore Politicians Warn Against Foreign Interference in Election
Driver Ploughs into Vancouver Festival Crowd, Killing Nine
Depression, Fear of Defamation, and a Tragic End: New Details on Virginia Giuffre’s Suicide
“Sharia for UK, Allah Akbar!”
Massive Explosion at Iran's Bandar Abbas Port Linked to Suspicious Chemical Shipments
Incident Reflection: A Harsh Reality Check
Pakistani migrants to Danish man: “ “We have 5 children while you have 1 or 2. In 10 years, there will be more Pakistanis than Danes here.“
Clashes Erupt in London as Tensions Rise Between Indian and Pakistani Communities
Specialized anti-drone weapons deployed among security personnel Ahead of Papal Funeral
How do you fix this culture?
×