Aurelia Butler

Britain’s economy has been unique for a number of reasons recently. The IMF expects UK growth to be the worst among large economies this year. It has also suffered the biggest decline in workforce participation of any G7 nation since the pandemic began. Another unwanted distinction is the persistence of its inflation, which has now been in double digits for seven straight months. Price growth is lower and tumbling faster in continental Europe and the US. The ongoing cost of living crisis is troubling for Prime Minister Rishi Sunak who promised to halve inflation by the end of the year and is grappling with striking public sector workers demanding higher pay. Yet although British inflation stands out, there are grounds to believe it will converge with its peers soon.In March, UK inflation dropped by less than expected, to 10.1 per cent. It has fallen by only 1 percentage point since its peak in October. In comparison, annual price growth in the eurozone is 6.9 per cent, and 5 per cent in the US; both are much lower than their peaks. Global price pressures have fallen. European natural gas prices have dropped sharply, supply chain disruptions have eased, and rapid rate increases by central banks are gradually squeezing demand. The extra stickiness in UK inflation, however, is linked to a few factors.Energy prices have been the driving force behind European inflation since Russia’s invasion of Ukraine last February. The plunge in wholesale natural gas prices, and thus the decline in inflation, is filtering through faster in some EU countries compared with the UK. This is in part due to differences in how consumer energy prices are set. Britain’s energy prices will nonetheless fall quickly in the coming months. Statistical effects also mean the jump in energy prices last year will drop out of the year-on-year comparison, helping inflation to fall significantly.The cost of food in the UK has soared too. In March, prices for bread and cereal pushed food price inflation to a 45-year high. The cost of ingredients and transportation has risen globally since the Ukraine war. Labour shortages, the weakness of sterling and poor harvests in Britain’s supplier countries have compounded the picture. Nonetheless, food prices are rising at similar rates in the EU. Looking ahead, pressures across global food supply chains are easing — the price of many agricultural commodities peaked last year and energy costs are reducing — which should filter through to supermarket shelves.This makes the outlook for core price growth — which excludes energy and food — crucial to assessing inflation’s staying power in the UK. Britain’s underlying inflation is higher than in many advanced economies. That is in part down to a unique set of factors causing labour shortages, including early retirement, sickness and a change in immigration rules post-Brexit. This has kept wages higher in Britain. Although recent data suggests the jobs market is showing signs of cooling, with hiring plans falling and wage growth edging down, it has not weakened as quickly as the Bank of England would have hoped. Businesses still have high pricing expectations for the year ahead, in part due to higher wage costs.Prior interest rate increases will increasingly filter through, weigh down demand, raise unemployment, and ease price pressures. But with core inflation at more than triple the BoE’s inflation target, policymakers still need to ensure domestic price pressures turn a corner. This means that a further 25 basis point rate increase at next month’s monetary policy committee meeting looks sensible. The easing of global price pressures should mean that headline inflation in the UK will subside to single digits. But the BoE still needs to finish the job on curbing price pressures at home. More

Private equity-owned Italian restaurant chain Prezzo is planning to close about a third of its sites, putting more than 800 jobs at risk, in a sign of how high inflation and the cost of living crisis are squeezing the UK casual-dining sector. Prezzo, which was bought out of administration by private equity group Cain International in 2020, announced on Monday that it would close 46 loss-making sites across the UK, cutting its estate to 97 restaurants and reducing its workforce to about 2,000 staff. Dean Challenger, Prezzo’s chief executive, said the past three years —covering the pandemic when Covid-19 restrictions led to a widescale shutdown of the hospitality industry — “have been some of the hardest times I have ever seen for the high street”.He added that “the cost of living crisis, the changing face of the high street and soaring inflation has made it impossible to keep all our restaurants operating profitably”, adding that the closures announced on Monday would affect sites “where the post-Covid recovery has proved harder than we had hoped”. The announcement shows the strain that soaring cost inflation in the aftermath of Russia’s invasion of Ukraine is putting on casual-dining operators as they try to recover from the pandemic. Prezzo recorded a loss of £22.4mn in 2021, according to its latest company accounts. Prezzo said it had faced double-digit wage inflation in the past year and its utility bills, which now account for 9 per cent of total revenues, had more than doubled over the same period. The price of ingredients such as pizza sauce and spaghetti had risen 28 per cent and 40 per cent respectively over the past year, the chain added.The number of casual-dining outlets across the UK fell 13 per cent in the three years to March 2023, according to the Local Data Company. Last month, Frankie & Benny’s owner The Restaurant Group said it would close 35 of its worst-performing sites, as it faces pressure from activist investors over its low share price. Prezzo said its estate would focus more on shopping centres, retail parks, tourist destinations and travel hubs to better cater for changing consumer habits. Challenger added that he believed the “tough decisions” taken by management would secure its future for “many more years to come”. Tom Pringle, joint head of restructuring at law firm Gowling WLG, said the closures were a “clear example of the economic fallout of prolonged high inflation”. “Huge rises in the costs of energy and food are eroding trading margins, and simultaneously making it difficult to pass these costs on to customers who are seeing the same pressures at home,” he added. Prezzo last announced a round of site closures and job cuts in early 2021 after it was bought out of administration by Cain. More

“The primary aim is to get Denmark through tough times,” Finance Minister Nicolai Wammen told reporters, calling the government’s policy a “very responsible and broad fiscal budget”.”It’s a fiscal budget that doesn’t add fuel to the inflation, but that fights it instead,” he added.The fiscal budget presented on Monday has a tightening effect on the economy equivalent to 0.9 percentage point, the government said.Danish consumer prices rose last year at a 40-year high rate of 7.7% but inflation is expected to ease to 3.9% this year and 2.8% in 2024, the government announced in March.The broad budget deal in parliament came after a five-month delay following a snap election and change of government in late 2022. More