The UK Economy Took Some Baby Steps

The UK Economy Took Some Baby Steps

about 1 year ago2 mins

The Office of National Statistics (ONS) reported that UK inflation eased a smidgen in December, with prices climbing 10.5% versus the same time last year.

What does this mean?

Anyone searching for silver linings in the UK’s recent economic headlines has probably developed a squint by now – but this time, there really could be a glimmer in the cloud. Sure, inflation still stung Brits last month: food was 17% more expensive, and even “core inflation” – that strips out volatile food and energy prices – was a biting 6.3%. But let’s focus on the positives: December’s inflation was slightly kinder than November’s, and the Bank of England believes that trend might be here to stay. The central bank even signaled that last year’s galloping, inflation-busting rate hikes could soon slow down to a leisurely trot.

UK inflation

Why should I care?

Zooming out: Wage worries.

It seems Brits drove a hard bargain in their annual performance reviews last month, given that December’s wages were over 6% higher than the same time the year before. And while that means inflation’s still overshadowing wage growth for now, that could soon change: plenty of experts predict that food and energy prices will lose their sizzle over the next few months, which would take the wind out of inflation's sails. If that happens, folk will find themselves with some extra cash in their pockets – problem is, any extra consumer spending could stop inflation from falling any further.

UK wage growth

The bigger picture: Everything happens to me.

Compared to the US and the EU, the UK has the worst of both worlds: a tight labor market like the US, and super-pricey imported energy like the EU. See, while the Americans and Europeans have got one hand tied behind their backs, they still have another fist to swing with: the US has enough domestic energy to keep prices low, and the European jobs market isn’t as hot-to-touch as the UK’s, which stops wages swelling. That means poor old Britannia might wind up being the last one to cut inflation down to size.

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