Why is inflation higher in the UK?

Inflation in the UK has stayed higher than elsewhere as the UK has endured the worst of both worlds – a big energy shock (like the euro-zone) and labour shortages (even worse than the US). Admittedly, the upward influence of the energy supply shock is fading. But the tighter labour market will probably mean that UK core inflation stays higher than in the US and the euro-zone until late-2024.

This Update was originally published on 19^th April. We updated the data, charts and text on 21st June to reflect the growing divergence between inflation in the UK and elsewhere evident after the release of the UK inflation figures for May. Clients can read more about why the UK is the “stagflation nation” in our UK Economic Outlook published on Monday and in this UK Economics Update published in early June.

UK Drop-In (22^nd June): Join our 20-minute briefing on the Bank of England’s June rate decision and the UK economic, housing market and policy outlook. Register now.