Things Are Getting More Expensive In The UK

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What's going on?

Prices in the UK rose a bit faster in June than economists were expecting but that could just be a harbinger of things to come

What does this mean?

In June, the higher-than-expected price rises were mainly caused by increases in air fare and petrol costs. Apparently, we can thank the Euro football championships for the higher air fares, while petrol prices are reflective of the recent rebound in the oil price.


In all, prices rose 0.5% in June versus one year earlier. But economists expect inflation to increase substantially as a result of the recent selloff in the value of the pound (due to the Brexit vote). When the pound becomes worth less, it costs Britain more (in pound terms) to import goods from abroad (and so the price of your avocado salad goes up).

Why should I care?

For you personally: Things are getting more expensive and its probably just the beginning.

It takes a little while for a weaker currency to actually feed through to prices. For example, UK Apple stores didnt raise prices immediately but the iPhone 7 will probably be more expensive than it would have been without the Brexit vote (because Apple still wants to make the same amount of money in dollar terms). So, unless the value of the pound unexpectedly recovers, Brits are probably in for a period of significantly higher inflation (many think inflation will go to about 3%).



The bigger picture
: The UK will try to avoid stagflation, which is when inflation increases while the economy shrinks.


2008-2012 was a particularly painful time in Britain because lots of people were losing their jobs and yet the prices of things increased quite significantly (it was driven primarily by the huge boom in commodity prices while the UK was still reeling from the financial crisis). Theres the potential for that to happen again as the falling pound pushes up inflation while UK economic growth slows in the wake of the Brexit vote…

Originally posted as part of the Finimize daily email.

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