The British are struggling to cope with the staggering effects of the inflationary crisis in their country, as fuel and energy prices soar up to three times compared to the spring.
Milk prices have already risen by more than 33% year on year; fruit juices and canned vegetables rose in price by more than 15 percent.
And a pint of beer in a London pub could soon jump from its current £7 to £10. By next year, a £14 pint – that’s over 20 Canadian dollars – is out of the question.
Economists watching the skyrocketing prices think it’s even worse.
“Inflation is everywhere,” said Sanjay Raja, a Canadian-born economist at Deutsche Bank who follows the UK economy. “This is energy inflation. This is food inflation. These are services. And they’re all being tracked at extraordinary levels – that’s what’s worrying.”
Inflation in the UK is already at 10.1%, the highest of any G7 country. The Bank of England predicts that the rate will rise above 13% in the coming weeks, with some forecasts that inflation will reach almost 19% by January 2023.
WATCH | Inflation hit Europe hard:
The economies of the EU and the UK are in decline, a recession is almost inevitable. Inflation is devastating household budgets in Britain and Europe, where, unlike Canada, the biggest price hike is likely yet to come.
The impact of higher prices is being felt across the country, but in less affluent British communities, the impact is particularly pronounced.
“We feed 13,000 people a month. And I think that number is only going to grow,” said Neil Charlick, chief executive of Gillingham Street Angels, a charity in this city of 100,000, about 60km east of London. mouth of the Thames.
“People Fight”
Charlick’s non-profit organization runs a food bank, thrift stores, and clothing exchanges, which have exploded recently due to higher food and energy bills.
“A huge number of people come for things; people are fighting so hard. food banks of his charity.
When the CBC visited this week, even during a downpour, people lined up long outside waiting to pick up fresh eggs and vegetables donated by Morrison’s, one of the city’s largest supermarket chains.
Under the tent, a few people flipped through racks of donated school uniforms—shirts, trousers, and blazers. Buying a new set will cost £136 (about CAD$200), said Lisa Dinin, who has four school-aged children who need them.
“School uniforms are very important,” she said. “I’m struggling to pay bills, pay gas, electricity and feed my kids at the same time.”
Inflation is “terrible, to be honest,” said Sophie Young, who is in her 50s and lives alone. She said mental health issues are preventing her from working, and rising prices have made it almost impossible to buy what she needs on her tiny fixed income.
“I’m so scared,” she said.
Increasing Energy Limit
The final blow came on Friday morning when UK energy regulator Ofgem confirmed that the ceiling on residential electricity bills would soon jump by 80%.
In April, UK household electricity costs were capped at an average of £1,971 (CAD$3,018) a year. From October, the limit will rise to £3,549 ($5,435) per year or £300 ($450) per month.
Costs and marginal rates are expected to continue to rise, with some forecasters suggesting they will reach £6,616 ($10,131) by April 2023 – an increase of almost 300 percent in one year.
The higher limit is intended to allow British energy suppliers to pay higher wholesale gas prices on the international market.
Energy surges will have huge implications for the country’s inflation rate.
Combination of domestic and international factors
The economic crisis is partly domestic and partly the result of the war in Ukraine, which has driven up global energy prices, especially natural gas.
Before Russia’s invasion of Ukraine in February, Britain imported just four percent of its energy from Russia, says Professor Karen Turner of the University of Strathclyde’s Center for Energy Policy. But as Russia cuts off gas to the rest of Europe in retaliation for harsh sanctions, Turner says the war has created fierce competition for the remaining supplies.
“Obviously, there are countries like Germany that are heavily dependent on Russian gas. If they don’t get their gas from Russia, then they are competing in the same markets as us,” Turner said.
While all the countries of Europe are grappling with the same inflationary problems, the energy shortage in Britain is particularly acute, since more than 40 percent of its electricity is generated from natural gas.
By comparison, Europe as a whole is approaching 25 percent of its electricity from gas flaring. In Canada, this amount approaches 10 percent.
Turner says renewables, especially wind power, offer Britain a way out of gas addiction, but the transition is still a long way off.
“People are still heating their homes with gas, so getting huge amounts of clean electricity won’t help them,” she said.
Britain’s ruling Conservative Party, which is in the midst of a race to win the seat of outgoing Prime Minister Boris Johnson, is divided over how to respond to the inflationary crisis.
Johnson said on Tuesday that British consumers will have to ‘stay the course’ to ‘defeat evil [Russian President Vladimir] Putin.” There remains a strong desire among British voters to continue helping Ukraine.
Promised cash flow
But the Tories have faced criticism for not doing more to help consumers. The head of a major Scottish electricity company has proposed freezing electricity bills for two years and giving energy companies £100m to cover their losses.
Instead, Johnson’s interim administration suggested that “cash flow” would soon be in place to help consumers, but it would be up to Johnson’s successor to decide exactly what that would look like.
Leadership contender Liz Truss said she would cut taxes significantly, while former Chancellor Rishi Sunak said she would cut VAT (or sales tax) on electricity bills and give money to poorer households to help them cope. The opposition Labor Party has pledged to spend more than £29bn ($44bn) to freeze electricity rates at their current levels.
Whatever the reaction, Raja, a Canadian economist, says the country is likely to continue to experience significant economic hardship.
“We are not entirely sure that any fiscal support that we are actually getting … will be enough to even prevent a mild recession,” Raja said.
Expensive pints
The price cap announced on Friday by Britain’s gas regulator does not apply to businesses, and the association, which represents 47,000 UK pubs, warns the consequences for the industry will be dire.
“The reality is that energy is a huge part of what is preventing us from being profitable right now. And it could hurt pubs and those pubs could close, and close forever,” said Emma McClurkin, chief executive of the British Beer and Pub Association.
“My brewers are facing huge increases in energy bills as well as rising costs across the entire supply chain.”
The war in Ukraine has driven up world prices for all grains and hops used by British brewers, as most of the world’s supply comes from either Ukraine or Russia.
According to McClurkin, only one in three British pubs are profitable, and increased energy consumption could wipe them out.
Recently, the British tabloids are full of scary stories about how expensive a pint of beer can cost. McClurkin says a £10 (CA$15) pint is certainly possible, but at some point, she says, customers will simply stop paying.
This is already happening to some pub dishes, she says, noting that an eight-ounce steak in a pub on the street costs £35 ($53).
“Not many people are willing to pay that kind of money for a steak,” she said. “So some [pubs] completely eliminated steaks from the menu.”