The UK has continued to have one of the highest inflation rates in the G7, mainly driven by rising energy prices and ongoing supply chain issues.
The UK is still grappling with sky-high prices, having been dealing with the steepest inflation among G7 nations since June 2024, according to new analysis by the Organisation for Economic Cooperation and Development (OECD).
The G7 refers to a group of the most industrialised nations globally and includes the UK, the US, France, Canada, Italy, Germany and Japan.
The UK’s November 2024 Consumer Prices Index, including owner occupiers’ housing costs (CPIH) figure came in at 3.5% on an annual basis. This was compared to October’s 3.2%.
This was also almost triple France’s annual inflation rate in the same month, which was 1.3%, while being significantly more than any of the other G7 countries as well.
Japan had the second highest annual inflation rate in the G7 in November at 2.9%, with Germany coming in at 2.2% and Italy at 1.3%. Canada’s year-on-year inflation rate was 1.9% in November 2024, with the US experiencing an annual inflation rate of 2.7%.
The UK’s Consumer Price Index (CPI), which is the more commonly used measure of inflation, also rose 2.6% on an annual basis in November 2024, compared to October’s 2.3%. This was still considerably higher than the Bank of England (BoE)’s target of 2%, despite consistent attempts over the last several months to get inflation under control.
What’s behind the UK’s soaring inflation?
One of the major factors driving the UK’s still-high inflation has been surging energy prices, following the Russia-Ukraine war, as well as Israel-Hamas war. Energy prices have also been further pushed up by rising wholesale energy prices.
UK wholesale energy prices have been increasing mainly because of booming energy demand post-pandemic, once the economy resumed normal business and industrial functions. The UK has also faced a colder-than-expected winter in 2024, which has led to more heating demand.
Network costs for energy distributors have also increased over the past few months, leading to several energy providers passing on these hikes to consumers, thus causing higher energy bills and aggravating inflation.
With a number of oil and gas companies now pulling back from fossil fuels and attempting to transition to renewable energy, there have also been short-term energy price hikes, while renewable resources are being ramped up to meet demand.
During the pandemic, the UK also saw an increase in demand for consumer goods, along with several other parts of the world, following surges in online shopping and e-commerce especially. This has led to significant supply chain bottlenecks and disruptions, which are still ongoing in several parts of the country, and have contributed to escalating prices.
Geopolitical tensions in the Middle East, such as the Red Sea attacks, have further exacerbated this situation, with a number of shipping delays and cancellations. This has especially impacted the UK, with the country being a large net importer of goods, and thus vulnerable to volatile global factors.
Similarly, food and agricultural prices have also risen significantly after the Russian invasion of Ukraine, with both countries being key global agricultural producers. As such, prices of vital commodities such as corn, wheat, fertiliser and sunflower oil have all skyrocketed lately.
The UK has also experienced strong wage growth in the last few months, pointing to a still-resilient labour market, which in turn has also pushed inflation up.
