I at the end of the In the summer, there was a sense of hope for the UK economy, as Covid restrictions were lifted and jobs started to return. But more recently the clouds have started to rise again. accumulate: the prices of some goods (like gasoline and gas) are rising and in some cases goods have even disappeared from the shelves. Why is this happening?
At the heart of this current price increase are global factors - the most important are the 'supply chain squeeze', the energy squeeze "and the " Covid bounce ". All three hit many countries at the same time and testify to the connectivity of our global economy.
The most important factor putting pressure on prices is the global compression of energy; we are seeing an increase in the prices of gas, gasoline and coal. Global demand for fossil fuels is rebounding strongly as the pandemic abates - and it conspires with a few other factors. Among them, the last winter has been unusually cold, which has not only increased the demand for gas in homes in the UK, but also around the world, pushing up prices internationally. In addition, Russia is providing less gas than expected, maybe for political reasons, further increasing prices. Oil prices also have recovered to pre-pandemic levels. Meanwhile, the UK government has created disappears extremely slow progress in insulating its homes and building transportation infrastructure that does not require fossil fuels. If there had been more progress on phasing out fossil fuels from our economy, the squeeze on energy would hit us less hard.
The compression of the supply chain is also increasing. price, because many products in the world are not as readily available as they usually are. At the heart of this is the target freight ships are not in the right places, as well as the lingering effects of Covid lockdowns in many countries. There are currently mContainer ships carrying cargo from China to Europe and the United States as needed. This leads to higher shipping prices and means less goods are delivered than consumers demand. And some specific goods are rare. Take, for example, the shortage of semiconductors: those little chips that run our computers and cars are the fourth most traded commodity in the world. Demand for them has skyrocketed during the pandemic as their production in Taiwan and Malaysia has been affected by the Covid shutdowns.
Next is the global rebound of Covid. Prices are rising as the global economy recovers. People buy cars and gasoline to fuel them, they go back to hotels andshopping centers. As a result, companies are cautiously ending their customer discounts from last year. Inflation has risen significantly in the UK compared to a year ago, in part because Rishi Sunak's "eat out to help" program cut prices last August. Much of this is positive: it shows that many people's incomes have held steady so far and that companies feel the demand for their products is coming back.
There are also other factors more specific to the UK that push inflation up. The UK is experiencing labor shortages in certain sectors - mainly heavy truck drivers, including those delivering petrol. This is due to deficit long standing in terms of training andworking conditions. But it's also because a lot of people have dropped out of the workforce, with young people entering education and older people retiring. It has been exacerbated by the government's Brexit plan, which has apparently closed many drivers. The UK also has a more serious gas price problem as its system has been marked by low storage capacity and operational problems. However, it is the global factors that are relatively more important, making it difficult for the government to do much to stop inflation from rising in the short term.
Due to these pressures, UK inflation reached 3% in the year up to August, and the Bank of England is expecting to reach 4%, and maybe more , by the end of the year. This would be double the expected rate.
Although the factors driving inflation are varied, most of them should be 'reverse by the middle of next year. Shipping problems may have now reached their peak as producers invest in the production of more semiconductors. Russia says that he is ready to increase the gas supply. However, this cannot be taken for granted.
Faced with this inflationary pressure, the question is whether something can be done in our country to alleviate it? The Bank of England is charged with keeping inflation in Britain at the 2% target, but its options are limited as it obviously cannot control these global factors. He has to walk a tightrope. It may soon begin to reverse cheap financing terms introduced during the pandemic, easing price pressures. But if it does so too abruptly, it could stifle the recovery and do more harm than good.
While the options to halt the rise in the inflation are limited, the government, meanwhile, has the means to alleviate some of the problems it causes, in particular by tackling thehe cost of living crisis for low incomes. First, the government should reverse its decision to cut universal credit which reduces income by 5.5 million families of £ 1,040 per year. The combination of high inflation and reduced benefits means that, for example, a single parent who works and depends on universal credit could see their real income fall by 7% . This is the biggest overnight reduction in social security since the creation of the welfare state and it must be reversed.
Second, the government should increase public investment to support the recovery while addressing some of the underlying domestic pressures that exist.i contribute to inflation. Public investment should increase , with a boost to green infrastructure. This could generate 1.6 million green jobs , while easing inflationary pressures caused by volatile energy prices. Further investment should be made in social infrastructure, including skills and education, to address the skills shortage in the UK.
Better preparing for the next crisis has been an important lesson from the past 18 months: Even though the underlying global factors will not just go away, the government still has steps to take to limit the risks of inflation to the world. 'future.