Inflation in the UK is once again heading for the 3-percent mark and is even expected to exceed this in the coming months. While price pressure in other industrialised countries is just starting to ease up again, the British pound weakened by the uncertainty over Brexit is causing British consumer prices to spiral steadily upwards. Bearing the brunt of this are the consumers who are now clearly restricting their purchases – private consumption, one of the cornerstones of the economy in the United Kingdom has more or less ground to a halt in the second quarter and visibly decelerated economic growth. The weakness of the pound as well as the uncertainty over the approaching EU exit are also having an adverse impact on immigration. The British economy can expect to experience considerable employment bottlenecks as a result of this. The UK is feeling the deceleration effects from Brexit more and more – and they are likely to intensify further in the months ahead.
British consumers are currently having to dig more deeply into their pockets: consumer prices in August were 2.9 percent higher than a year earlier, with the inflation rate having climbed since May this year to a four-year high for the second time. Above all imported goods have risen in price, such as clothing and shoes, but car accessories and repairs have also become considerably more costly. This is compounded by the renewed rise in oil prices which was quick to be felt at the petrol pumps. The key factor driving up prices is the weak pound, which has seen around 20 percent wiped off its value since last year’s Brexit vote, with some 10 percent of this being lost during the last summer months alone. The price hike is therefore likely to continue, and we also expect the inflation rate to pass the 3 percent mark in the coming months. The British therefore have little to laugh about and will probably have to tighten their belts once again in the near future. In the first half of this year already, private consumption had already visibly decelerated, almost grinding to a halt in the second quarter. The consumer climate is very subdued, even despite the exceptionally good employment situation. There are thus few signs that consumption will recover for the time being – the British economy will therefore have to increasingly do without one of its most important growth drivers.
A further burden as a result of the Brexit perspective and pound weakness is literally coming „through the back door“: since the middle of last year, the previously high immigration into the United Kingdom has fallen noticeably, in particular the hitherto very brisk immigration of Eastern European EU citizens. At the same time a large number of immigrants are returning to their home countries. Since the Brexit vote, on balance nearly 100,000 fewer migrants have entered the UK than before the referendum. This is clearly connected with the uncertainty over the status that EU citizens will have after Great Britain’s exit from the EU. But that’s not all. Particularly for the many Eastern Europeans who send part of their earnings back to their home countries, the strong loss in the value of the British currency now represents a significant loss in income for them and is thus making life in the UK less attractive. If the migration wave ebbs further and the return migration simultaneously gathers pace, a shortage of workforce will become apparent in multiple sectors which will not be easy to counterbalance. It is difficult to imagine certain areas of the British economy without the Eastern European migrants in particular – the construction industry, industry and above all agriculture. A disproportionately high number of them are employed in low-paid jobs which the British are unlikely to accept. For the British economy, this also means further burdens from this area. In past years, brisk immigration has contributed positively to the country’s good economic development – if this now declines, a further key growth factor will also be lost.