London Daily

Focus on the big picture.
Thursday, Jul 03, 2025

Why is UK inflation higher than other countries?

Why is UK inflation higher than other countries?

The UK's inflation rate jumped unexpectedly last month with the cost of living rising faster here than in most of the world's advanced economies.

Price rises rose by 10.4% in the year to February, in contrast to the US and the Eurozone where inflation has eased to 6% and 8.5% respectively.

Inflation is volatile and reading too much into one month's figures would be a mistake, however, the UK's inflation rate has been persistently higher on average compared to the US and other large economies in Europe over the past year.

With the cost of living continuing to eat away at household budgets - many are starting to ask: Does the UK have its own inflation problem?

We look at three factors driving up prices:


1. Food price rises


One of the main drivers of February's inflation rise was the price of food in the UK continuing to surge.

Food inflation was up 18.2% last month compared to the same time a year earlier, with salad and vegetable shortages driving the latest rises in costs for customers.

Tomatoes, peppers and cucumbers have been some of the goods in short supply largely due to extreme weather in Spain and North Africa hitting harvests. In the winter, the UK imports a lot of such produce from abroad.


The shortages have also been compounded by high energy prices in the UK leading to vegetable growers and farmers cutting down on crop yields or avoiding producing certain foods at all due to rising running costs, according to Minette Batters, president of the National Farmers Union (NFU).

She says its a "it's a very complex picture" but all of the union's surveys of growers show that businesses are contracting and the more the sector shrinks "the less there is, the rationing comes in and that just drives further food inflation".

Farmers have also argued that retailers and supermarkets are not paying a fair price for them for their produce, and the government's food tsar has said supermarkets having "fixed-price contracts" with suppliers means when food is scarce, some producers opt to sell less to the UK and more elsewhere in Europe.


2. Wholesale gas prices


Energy bills have risen globally since Russia invaded Ukraine. However, the impact felt in the UK by higher gas prices has been harder for households and businesses than their counterparts in other advanced economies.

Analysts say the UK is more exposed to rises in the prices of wholesale gas.

Jonathan Haskel, a member of the Bank of England's Monetary Policy Committee which decides on interest rates, has said previously the UK appeared to be one of the "most susceptible" countries to energy price shocks.

He cited the UK being a bigger user of gas to heat homes and keep lights on than other European countries. He also added that gas was transferred mostly via pipelines from a handful of suppliers, whereas the US produced most of its own gas and relied more on Liquefied Natural Gas (LNG).

Taxes being lower on electricity and gas paid by UK consumers compared to their European neighbours meant when wholesale gas prices rise, UK energy bills "would be expected" to go up more than others, he said.

On the upside, this means bills should fall more quickly when the wholesale prices come down, as they are expected to in the coming months.

Martin Beck, chief economic adviser to consultancy the EY Item Club, says February's rise is a "flash in the pan".

"Things will improve quickly - it's bad news today," he adds.


3. Worker shortages and wage rises


The energy price shock is a major driver of the prolonged high inflation in the UK, but it's not the only cause with the UK also having a major worker shortage.

During the pandemic, all major countries saw their workforce shrink.

But while most leading economies have since recovered, the UK still has about 400,000 more people not working than in December 2019.

A study by the think tanks Centre for European Reform and UK in a Changing Europe suggests there are 330,000 fewer workers in the UK as a result of Brexit, with sectors such as transport, hospitality and retail have been particularly hard hit.


Other reasons include young people opting to study rather than work, older people retiring early, and more people being off work due to long-term sickness.

The shortage of workers has helped drive up pay packets with employers shelling out more to attract and retain staff.

Many supermarkets have given staff several pay rises as they battle to find workers.

Bank of England governor Andrew Baily warned workers asking for pay rises last year, saying it could push inflation out of control, though unions argue they are required to cope with the rising cost of living.

Experts are still predicting price rises to slow in the coming months, but if the UK gets more surprises like February's and high inflation persists, more questions will emerge of why the UK is an outlier.

Newsletter

Related Articles

0:00
0:00
Close
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
Poland Implements Border Checks Amid Growing Migration Tensions
Political Dispute Escalates Between Trump and Musk
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
US Senate Votes to Remove AI Regulation Moratorium from Domestic Policy Bill
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
Jury Deliberations in Diddy Trial Yield Partial Verdict in Serious Criminal Charges
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
King Charles Plans Significant Role for Prince Harry in Coronation
Two Chinese Nationals Arrested for Espionage Activities Against U.S. Navy
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
Trump Administration Considers Withdrawal of Funding for Hospitals Providing Gender Treatment to Minors
Texas Enacts Law Allowing Gold and Silver Transactions
China Unveils Miniature Insect-Like Surveillance Drone
OpenAI Secures Multimillion-Dollar AI Contracts with Pentagon, India, and Grab
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Elon Musk Critiques Senate Budget Proposal Over Job Losses and Strategic Risks
Los Angeles Riots ended with Federal Investigations into Funding
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Education Secretary Announces Overhaul of Complaints System Amid Rising Parental Grievances
Massive Anti-Government Protests Erupt in Belgrade
Trump Ends Trade Talks with Canada Over Digital Services Tax
UK Government Softens Welfare Reform Plans Amid Labour Party Rebellion
Labour Faces Rebellion Over Disability Benefit Reforms Ahead of Key Vote
Jeff Bezos and Lauren Sánchez Host Lavish Wedding in Venice Amid Protests
Trump Asserts Readiness for Further Strikes on Iran Amid Nuclear Tensions
North Korea to Open New Beach Resort to Boost Tourism Economy
UK Labour Party Faces Internal Tensions Over Welfare Reforms
Andrew Cuomo Hints at Potential November Comeback Amid Democratic Primary Results
Curtis Sliwa Champions His Vision for New York City Amid Rising Crime Concerns
Federal Reserve Proposes Changes to Capital Rule Affecting Major Banks
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Trump Escalates Criticism of Media Over Iran Strike Coverage
Trump Announces Upcoming US-Iran Meeting Amid Controversial Airstrikes
Trump Moves to Reshape Middle East Following Israel-Iran Conflict
Big Four Accounting Firms Fined in Exam Cheating Scandal
NATO Members Agree to 5% Defense Spending Target by 2035
Australia's Star Casino Secures $195 Million Rescue Package Amid Challenges
UK to Enhance Nuclear Capabilities with Acquisition of F-35A Fighter Jets
×