The United Kingdom is an exception in Europe. Inflation is much higher than in the rest of the continent and continues to increase by 3.8% for a year in July, compared to 3.6% in June, he announced on Wednesday, August 20.
This level of inflation, the highest since January 2024, is higher than the expectations of analysts, which achieved an increase of 3.7%, according to the consensus established by Bloomberg.
Inflation is much greater than in France (1%for a year in July), in Germany (1.8%), in Spain (2.7%) or in Italy (1.7%). In general, in the euro area, the price increase was limited to 2% for a year in July.
An “oasis effect”?
But how to explain such inflation? First, Julio is a bit partial. “Reading July inflation is interrupted by the seasonal effects related to summer vacations,” said Lindsay James, from Quilter Investors.
This high inflation rate is supported by the prices of aircraft inputs that have exploited (the highest since 2001).
As another possible explanation, Lindsay James cites “the long tours of Oasis concerts”, which “has increased hotels prices.” Before the publication of inflation figures, several economists were in fact a possible “oasis effect.”
Fans really arrived in number to see Gallagher Brothers live during their tour in the United Kingdom. Hotel prices were able to rise from 50 to 65% and up to 90% in some cases in interested cities and around the concert of the famous Britpop group.
In its measures, the ONS observes a strong increase in the prices of accommodation services in July, in particular the hotel nights reserved the previous day, but does not mention a link with the concerts of the rock group. The cause and effect link is difficult to establish with certainty. But one thing is sure, if the “Oasis effect” would have it, it was necessarily temporary.
According to Matthew Ryan, an Ebury analyst, “inflation should reach more than 4% next month before moderating towards the end of the year.” She could decelerate in September.
High energy and food prices
To explain this high inflation rate, and in addition to the prices of aircraft tickets, the ONS also highlights oil prices, diesel and food, including coffee, orange juice, meat and chocolate.
In addition, according to Lindsay James, the high increase in employer’s contributions decided by the Labor Government and entered into force in April, also plays an important role in increasing prices.
A note from the General Treasury Directorate is subscribed to these explanatory factors. “This increase (of inflation) had been largely anticipated by the markets, but also by the Central Bank (BOE) and the IMF,” writes the Flaçaise agency.
This note quotes in particular “the effect of the increase in administered energy prices (the prices of electricity and gas were observed in an average of +6 % on average on April 1) and the water (of the order of +25 %), and the repercussions on the services of the increase in the contributions of the employers in April (from 13.8 % to 15.0 %)”.
Labor Government under pressure
In this context, the British government is trying to reassure. “We are far from the two -digit inflation that we have met under the previous government, but there is still much to do to lighten the cost of living,” said Labor Minister Rachel Reeves, in a statement.
The publication of the inflation figure follows that of GDP growth in the second quarter of last week, which remained low, with 0.3%, which causes fears of “stagflation”, lasting inflation combined with fragile growth.
Such inflation rate increases pressure on the Labor Government, which is struggling to relaunch economic activity, after having announced significant taxes and drastic cuts in public finances last year. Not to mention Donald Trump’s commercial policy.
All this emphasizes “the pressure on the BOE to keep its rates without changes,” said Matthew Ryan, saying that he no longer predicts “there is no decrease for the rest of the year.” The BOE has just lowered its 4%key rate, after a tight vote, to support a problem economy. She had asked for caution for the future.
Source: BFM TV
