Inflation has been a driving force in the UK economy for close to a century. For the past fifty years, interest rates and money supply control have become the tool of choice to control domestic inflation. The knock-on effects of these tools are clear – the cost of living in the UK has sharply increased every year up to the present day.
The ONS’ cost of living index (as measured by the cost of a basket of goods and services) has risen over 6,800% since the records began in 1800, with the vast majority of that increase occurring over the past fifty years. Here we take a closer look at the components of the cost of living index and see how and why prices have been rising.
The blight of the UK’s housing market should surprise no one – real estate and property have been a growing source of wealth for decades. The average price of a house in England and Wales has risen by 340% since 1995 and those in London have shot up by over 550% over the same period. The diagnosis of the problem is simple: the UK doesn’t build houses. Since 1970, England and Wales have built, on average, 186,000 houses per year. Housebuilding numbers show there’s been just one year in the past twenty in which England and Wales built houses at a faster rate than the fifty year average. This constricted supply has fed right into house price pressure – and until housebuilding picks up, this is a problem that’s unlikely to go away.
Unlike the wage of journalists, and price of distribution channels and electronics, newspaper prices have more than doubled since 1996. The main culprit is newsprint; foreign exchange costs via the poorer sterling exchange rate have prompted a 10% rise in the cost of newsprint in 2016 alone. To produce one tonne of newsprint (made, largely, from recycled animal feed) now costs close to £360 and is expected to rise to over £400 per tonne by the end of the year – a sharp increase of over a third since 2015.
Until 1990, lager and ale cost well below £1 a pint and have since risen almost fourfold to just under £4 a pint. While the global supply of hops has been rising (the 2016 crop hit a seven-year high) the rise in preference for hop-heavy, aromatic beers means those hops aren’t going anywhere near as far as those used in mass-produced lagers that have dominated for the past few years. As a result, hops prices have spiked; one pound of premium hops now changes hands for close to $4.50 per pound – more than double the price in 2005.
While you may still be able to find a cheap meal at your favourite local restaurant, on the whole, eating out has become much more expensive. The cost of your average restaurant meal has more than doubled over the past two decades, making weekend trips and staycations eat even further into your budget. It’s easy to assume that the base costs of a restaurant meal (most commonly food and alcohol) are behind this price rise, but data proves otherwise; food and alcohol prices have stayed broadly flat since 1996 – so is it greedy restaurant owners jacking up their prices year after year? The more likely culprit is labour costs. Minimum wage rates have risen by over 50% since the year 2000 and this, feeding through into your bill, is behind more expensive restaurant meals.
The rise in transports costs (both private and public transport) have far outstripped the rate of inflation and, while labour costs will have played a factor, rising energy prices are the main driver. Oil prices are often volatile, unpredictable and difficult to forecast, but it’s hard to see a barrel of Brent crude falling to $20 per barrel as we saw in the 90s. This, alongside increasing taxation on energy consumption will keep transport costs high for the foreseeable future.
This article is part of our spring edition of Transfer magazine. Download your complimentary copy here.
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Will we see a recovery in Europe this year?