UK faces 'darkest hour' of double-digit inflation

The United Kingdom's consumer price index rose 10.1 percent in July from a year earlier, the country's Office for National Statistics said on Aug 17, beating a median forecast of 9.8 percent in a survey of economists, the highest since June 1982.

The main reason why UK inflation has breached double digits is that the shadow of inflation has spread from energy to food.

The UK is less dependent on Russian gas than continental Europe, at about 4 percent. But the UK needs undersea pipelines from the European Union to import gas and electricity from Norway, known as Europe's battery, to make up for its energy shortfall.

Therefore, the current energy crisis in the EU has indirectly affected Britain, as it has to buy electricity from the electricity trading market at 50 times the normal price-a premium that is broadly in line with the rise in European gas prices so far from 2021. And hit by hot and dry weather, Norway has recently announced it will consider measures to limit exports to prevent a domestic power shortage.

Higher energy prices are finally feeding through to the food industry. The Office for National Statistics said higher prices for bakery products, dairy products, meat, vegetables, pet food and takeaways pushed up inflation in July.

High inflation has led to a 3 percent fall in real wages for UK residents, the biggest fall since records began in 2001. Some pessimistic economists argue that living standards have actually fallen back to what they were decades ago.

To make matters worse, the UK's labor shortage is becoming more acute. The impact of Brexit has greatly reduced the number of overseas workers coming to work in the UK, especially in the agricultural sector.

Although about 1.1 million people have returned to or gone to the UK since the COVID-19 pandemic began, the country has still lost about 550,000 workers. It is expected that inflation in the country will peak at 13.3 percent in October.

All the signs show that the UK government is incapable of dealing with the inflation. Both candidates to be the next prime minister are trying to dodge that daunting challenge by diverting people's attention to foreign affairs, by hyping up challenges from China and Russia. It is fair to say that the Tory government has already lost control of inflation.

Adjusted for inflation, the UK's gross domestic product is likely to fall into a recession comparable to that of 2020, which beginning in the fourth quarter of this year is likely to last for 15 months until early 2024. This means that whoever is elected the next prime minister of the country will face a "darkest hour" soon.

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