Many high-income economies are suffering 40-year highs in inflation. They all have faced the same series of major supply shocks to their economies simultaneously: reopening of the economy after the first wave of the COVID-19 pandemic in spring 2021, global supply chain disruptions for critical goods throughout the last 18 months, and energy and food price shocks caused by Russia's invasion of Ukraine in February 2022.
Yet, there are significant differences in the inflation experienced. Inflation is particularly acute in the United Kingdom, triggering a cost of living crisis for British households. Comparing like for like in inflation rates, removing the impact of volatile food and energy components, inflation is 1.6 percentage points higher in the UK than in Germany, nearly 3 percentage points higher than in France, and more than 3 percentage points higher than in Italy.
Of course Brexiteers blame higher UK inflation on war-related food and energy shocks. Such assertions fall flat for several reasons. First, UK core inflation began diverging from Europe by mid-2021, months before the invasion. Second, all European countries are experiencing a jump in food and energy prices; some, like Germany and Italy, are even more exposed to food and energy price shocks than the UK because they are highly reliant on Russian natural gas. In any event, the comparison of core inflation (which excludes food and energy) takes that out. Third, the UK had similar policies on protecting employment to those in France and Germany in response to COVID-19, so the aggregate wage response to reopening should have been roughly the same—but wage inflation has been much higher in the UK.
Most impartial observers state that Brexit, is the primary driver of the high and widening inflation differential between the UK and its European peers shown in the chart: Brexit has amplified the inflationary impact of the range of influences.
Furthermore, as food and energy supply becomes critical, the UK will be hampered by its position not only outside the EU, but outside the single market and customs union.