UK Inflation Concerns Rise Amid Government Spending

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*LONDON*: Just as Britain seemed to be moving past its inflation troubles, new government spending and the risk of a global trade war triggered by US President-elect Donald Trump’s tariff plans are raising concerns about rising prices once again.

British inflation peaked above 11% two years ago, following the outbreak of the Ukraine war, making it the highest among major economies. The decline in inflation has been slower in the UK compared to other countries, largely due to a labor shortage stemming from the UK’s exit from the European Union.

While analysts do not expect another double-digit inflation spike, the Bank of England has raised its inflation forecasts for the next three years following the October 30 budget, which increased employer taxes and could drive up prices and wages.

Trump’s election victory has prompted investors to rethink their expectations for interest rate cuts from the Bank of England next year. This poses a challenge for Prime Minister Keir Starmer, who has pledged to make Britain the fastest-growing economy in the G7.

Consultancy Pantheon Macroeconomics noted, “We think the UK budget and Mr. Trump’s election will boost UK inflation and rates.” Following the budget announcement, initial predictions of three rate cuts by the end of 2025 have dwindled to just two.

As Trump announced hard-line nominations for key administration positions, market confidence in rate cuts diminished further. In contrast, the European Central Bank is still expected to implement five cuts for the struggling eurozone.

One potential scenario could see inflation in the UK and beyond soften if Trump’s tariffs significantly impact China’s exports to the US, leading to lower prices in other markets. However, if the UK and other nations retaliate with tariffs, the disruption to global supply chains could result in slower growth and faster-than-expected inflation.

As the situation unfolds, the UK government faces significant challenges in managing inflation and fulfilling its economic promises amid these external pressures.