Inflation, unlike much else, is made in Britain. Old excuses that it is imported, because of war, snarled-up supply chains or high global food prices, no longer wash
, grim, inflation figures in Britain were not—truly—a shock. For each of the past few months a routine has emerged: the numbers come in worse than had been forecast, traders adjust expectations upwards for how fast, and far, the Bank of England will raise interest rates, and thus the cost of borrowing jumps. After that, mortgage holders fret and the government makes sympathetic noises. The figures for May, published on June 21st, followed that sorry script to the letter.
What has gone so wrong? Britain is exposed to higher prices for natural gas. Put that aside, however, and it is clear inflationary pressures are overwhelmingly the result of decisions taken at home. . The rate of services inflation, overwhelmingly a domestic factor, rose in May to an annual rate of 7.4% from 6.9% previously. The rate of goods inflation did drop slightly, from 10% to 9.7%, in part because food-price increases are not quite so rapid as before.
Demand is strong, in turn, because policymakers have long been trying to rev it up. Consider fiscal efforts. Britain stands out for the stimulus it gave to the economy in the pandemic and then, last year, during the energy crisis. One measure of this is to combine an estimate from the International Monetary Fund of covid-era support with one from Bruegel, anthink-tank, of help for households and firms hit by painful energy bills. Only America doled out a bigger stimulus.
It is becoming apparent that—because fewer Britons have a mortgage than in previous tightening cycles and, in any case, many have fixed rates for longer—the effects of rate rises have, so far, been limited. The result: the bank will probably have to tighten more to achieve the same, dampening, effect.
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