Business Briefing

How the UK’s cost-of-living crisis compares with the rest of the world

‘Toxic combination’ of factors make Britain especially vulnerable to economic pain

People all over the world are feeling the effects of rising prices as the cost of living continues to rocket – but could the UK end up suffering the most?

While many countries are experiencing higher energy bills, supply chain disruption and the lingering effects of the pandemic, price pressures in the UK are “expected to be worse and longer lasting”, according to The Telegraph

Kristin Forbes, a former member of the Bank of England’s Monetary Policy Committee, told the paper that “there’s about six factors that feed through into inflation and the UK hits every box”.

Exacerbating financial pain

The UK is set to experience a “toxic combination” of price drivers, said the paper, namely “an extremely tight jobs market, a plunging pound and higher inflation expectations”. And additional taxes on households being imposed by the government are also likely to exacerbate financial pain for many, “something few governments are daring to do at a time of soaring living costs”, said the paper.

Inflation is soaring and currently stands at about 7%, although the Bank of England (BoE) predicts it could reach as high as 10% this year due to rising energy prices. It’s a figure far from the Bank’s 2% target, a “key part” of its “price stability” mandate, said The Independent

The BoE’s governor Andrew Bailey has said that the UK is in a “bad situation” with inflation, and has warned that a “very big income shock” could be about to hit British households. He added that due to the ongoing Russian invasion of Ukraine, there could also be an “apocalyptic” rise in global food prices.

Treasury select committee chair Mel Stride questioned whether Bailey had been “asleep at the wheel” when it came to rising interest rate pressures, but the BoE governor said that roughly 80% of forces pushing up inflation in the UK are being driven by global circumstances.

He added that the remaining 20% of issues affecting growth were due to the reduction in the workforce post-pandemic. “The scale and persistence of the fall has been very unusual,” said Bailey.

Crisis regions in Africa face famine

But while global price rises will certainly be sharply felt in the UK, the effects will be even more acute in already suffering “crisis regions” across Africa, said DW.

Teresa Anderson, the international climate policy coordinator at Actionaid, “told DW that many African economies are still reeling from the pandemic, climate change, humanitarian emergencies, or political and economic unrest” while the effects of the Ukraine war have only “exacerbated the situation”.

In Kenya, about “one-third of imported wheat comes from Russia and Ukraine”, said the paper, leading to rising bread prices and production costs. The 2022 Kenya Economic Survey found that most Kenyans are increasingly turning to their savings and loans to meet the rising cost of living.

Anderson also warned of “a famine of unimagined proportions”, especially in Zimbabwe, where daily living costs are rocketing. “In Zimbabwe, the price of gasoline has more than tripled, as has the price of cooking gas,” Anderson told the broadcaster. “The price of noodles has more than doubled.”

And in the Horn of Africa, parts of Kenya, Somalia and Ethiopia are already gripped by a hunger crisis thanks to an acute drought spanning three rainy seasons, leading to people “killing livestock, forcing people to leave their homes and increasing levels of child malnutrition,” said The Guardian

The Russian invasion of Ukraine has only worsened the situation, “pushing up the price of staples such as wheat and sunflower oil, as well as fuel”, and leaving up to 20 million people facing hunger.

Patrick Watt, CEO of Christian Aid, has said that the war in Ukraine has turned the situation in the Horn of Africa into a “dire crisis”, with the people of Ethiopia, Kenya and Somalia “facing a crisis like no other”.

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