It’s so a lot easier to interpret the UK economic system for those who attribute each single drawback to Brexit. Nevertheless it’s additionally incorrect.
Final week, for instance, the EU statistics company Eurostat launched preliminary knowledge suggesting that client value inflation within the euro space fell from 8.5 per cent in February to ‘just’ 6.9 per cent in March, together with a drop from 9.3 per cent to 7.8 per cent in Germany.
The ache in Spain might already be over, with inflation there anticipated to be a balmy 3.1 per cent.
In distinction, the UK client value (CPI) measure rose to 10.4 per cent in February. The March knowledge, out on 19 April, will in all probability nonetheless be round 10 per cent. Cue the predictable cries of “it was Brexit wot executed it!”, from all the same old suspects.
Nonetheless, even the briefest of glances under the hood tells a really totally different story. The hole between inflation within the UK and in the remainder of Europe can virtually completely be defined by vitality costs.
For those who look as a substitute at client costs excluding vitality, inflation within the euro space really rose from 7.8 per cent in February to 7.9 per cent in March. The equal determine for the UK was 7.6 per cent in February, so it was decrease than within the euro space, and decrease than both Germany (7.8 per cent) or Spain (8.1 per cent). The image for March is unlikely to be a lot totally different.
There are a number of explanation why vitality value inflation could also be greater – and stickier – within the UK than for our rivals in Europe. These embody peculiarly British approaches to the setting of wholesale electricity prices, a excessive dependency on pure fuel, and the operation of the Ofgem cap on home payments. Greater prices as a result of ‘internet zero’ agenda haven’t helped, both.
These causes additionally embody a choice for serving to probably the most susceptible households and companies by topping up their incomes, relatively than aggressive intervention (together with tax cuts) to maintain costs down.
Which means that measured inflation has been greater within the UK than in international locations like Spain, or France, the place the state has merely not allowed vitality prices to rise as far. However shoppers have nonetheless been protected.
We are able to debate the deserves of all these decisions on vitality coverage. Nonetheless, the essential level is that they’re nothing to do with our departure from the EU. Anybody claiming that headline inflation is comparatively excessive within the UK “due to Brexit” is simply not doing their homework.
What about meals costs? Right here many Remainiacs have gone into overdrive. One even claimed over the weekend that “our meals inflation is the best on the earth due to Brexit”, which was gleefully preferred and retweeted by her extra gullible followers. That is nonsense.
Listed here are the simply verifiable details. The UK CPI measure of inflation for meals and “non-alcoholic drinks” (no matter they might be) was 18.0 per cent in February. This was somewhat above the euro space common (17.3 per cent), however decrease than the speed in lots of comparable international locations, together with Belgium, Germany, Portugal and Sweden.
It was additionally under the common for the EU as a complete (19.1 per cent). So UK meals inflation isn’t even the best in Europe, not to mention “the world”.
Business surveys do counsel that UK meals value inflation rose even additional in March. However the preliminary knowledge for the euro space present that it has hit new highs in the remainder of Europe too. Specifically, the nationwide measure in Germany could possibly be as excessive as 22.3 per cent.
Lastly, if we simply have a look at the usual measure of ‘core’ inflation, which strips out vitality, meals, alcohol and tobacco, the underlying price was 6.2 per cent within the UK in February. Once more, this was little totally different from our friends within the euro space (the place the common was 5.6 per cent) or the EU (6.6 per cent). Any hole can even simply be defined by non-Brexit elements, together with the move by means of of upper vitality prices to different costs.
Inflation is just one of a number of examples. One other is the deterioration within the UK’s deficit in trade in goods. Stability of funds knowledge final week confirmed that this deficit had widened to greater than 10 per cent of nationwide earnings in 2022, which once more some had been fast responsible on Brexit.
As an alternative, the true perpetrator was, as soon as extra, the surge in energy prices, which massively inflated the import invoice. This additionally drove the EU’s commerce stability in items to a report deficit – certainly the primary on report, as a result of the EU normally runs a sizeable surplus!
In fact, the truth that inflation is simply as huge an issue in the remainder of Europe isn’t any comfort for British households and companies struggling to pay their payments. However these affected by “Brexit derangement syndrome” do us no favours by misdiagnosing the issues.
I’m not positive how else to explain this. Tunnel imaginative and prescient? Affirmation bias? Monomania?
Extra positively, inflation ought to fall sharply in each the euro space and the UK over the remainder of the yr. UK vitality value inflation will nonetheless observe the euro space down, as soon as our quirks have labored by means of.
That is regardless of OPEC’s choice over the weekend to chop oil manufacturing. Even after Monday’s 6 per cent soar, the worth of crude is greater than 20 per cent under the place it was a yr in the past. The gas value part of UK client inflation ought to nonetheless flip damaging, if it has not executed so already.
Meals value inflation can be set to tumble. The UK will develop into much less depending on seasonal imports because the climate improves. The producer value measures counsel that pipeline pressures in the food industry have already eased significantly.
‘Core’ inflation might show a a lot more durable nut to crack – and that is what’s most worrying the Financial institution of England. Those that have been frequently and wrongly predicting that the soar in inflation can be “transitory” have tended to focus simply on vitality and meals costs, ignoring the underlying traits. Certainly, round two-thirds of the general basket of products and companies recorded a 12-month inflation price of greater than 4 per cent in January.
Fortuitously, there may be another excuse for optimism right here. The flood of low cost cash which has allowed such a broad-based rise in costs has now was a trickle, as financial and monetary circumstances have tightened.
This can be an rising headwind for the true economic system. Nevertheless it does imply that UK inflation is ready to fall sharply over the remainder of the yr – whatever the newest Brexit scaremongering.
Julian Jessop is an unbiased economist. He tweets at @julianhjessop