Ashes to ashes, boom to bust

It was a tough week for England. A narrow defeat against arch enemy Australia in the first Ashes test was followed by a gloomy inflation report which showed UK price pressures remaining uncomfortably high.

In response, the Bank of England announced a bigger-than-expected interest rate hike with the warning that more was possibly to come. Rounding off the bad news, the latest data on government borrowing puts the country’s debt-to-GDP ratio at 100% for the first time since 1961, when it was still paying off World War II debt.

We’ll leave cricket commentary to the relevant experts, but when it comes to inflation and rates, there are several important points to highlight.

London, we have a problem
The UK has a serious inflation problem. With the great energy and food price shock of 2022 starting to roll out of the year-on-year numbers, one cannot blame Russia anymore. Headline inflation was unchanged at 8.7% year-on-year in May. To avoid 2022 confusing things, we can look at the three-month-on-three-month annualised rate of change. This was 11%!

Even worse, we can completely exclude the impact of volatile food and fuel prices, a measure known as core inflation. This increased to 7% year-on-year and to 12% on a three-month annualised basis. While core inflation has been gradually declining in other developed economies, it is still going the wrong direction in the UK.

As in other parts of the developed world, the UK has a labour shortage and unemployment is low despite tough economic conditions. This is one of the reasons why so many South Africans seem to be moving there recently. However, immigration from the European Union continues to decline because of Brexit, and this is adding to the lack of workers. It is notable that Brexit regret – Bregret – is also running high as the decision to leave the European Union starts to impact daily life. A recent YouGov poll showed that 62% of voters felt leaving the EU had been “more of a failure than a success”, with just 9% saying it had been a “success”. While South Africa remains a world champion at scoring own goals, the country where football originated has given us a run for our money in recent years.

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