Written by Pedro Martínez de Anguita, our Foreign Trade and Communications Assistant
Inflation does not affect all countries equally. Although the United Kingdom and the European Union share many of the same shocks — energy, food, transport, interest rates and geopolitical tensions — the British economy often shows greater sensitivity to price increases. This does not happen every month or in every cycle, but there is a recurring perception: when prices rise, they tend to be felt particularly strongly in the UK.
The explanation does not lie in a single cause. It is not just Brexit, nor only the pound, nor only wages. It is a combination of structural factors that make British inflation harder to contain than in many European economies.
The first factor is external exposure. The UK relies heavily on imports to supply food, raw materials, industrial components and consumer goods. This means that any increase in international costs is quickly passed on to British consumers. If fertilisers, gas, oil, maritime transport or certain agricultural products become more expensive, the impact eventually reaches supermarkets, factories and households.
The pound can cushion economic shocks but also intensify inflation. When sterling weakens, imports become more expensive, quickly raising prices in the UK’s import-dependent economy. This occurred after the Brexit referendum and remains visible in food prices: olive oil, meat and eggs have risen by 113%, 63% and 59%, respectively, driven by import costs, energy prices, poor harvests and global commodity pressures.
The second element is energy. The UK has its own production, but domestic prices remain closely linked to the international gas market. During the energy crisis, this exposure became clear. British households faced sharp increases in their bills, and many companies saw their operating costs rise. Although the EU also suffered the energy shock, some European countries had different protection mechanisms, contracts, energy mixes or public interventions, meaning that the pass-through to consumers was not identical.
The third factor is the labour market. For years, the UK has faced worker shortages in sectors such as transport, agriculture, hospitality, construction, healthcare and social care. Brexit did not create this problem on its own, but it did reduce the availability of European labour in certain activities. When fewer workers are available, companies have to raise wages to attract or retain talent. This can be positive for employees, but if productivity does not grow at the same pace, companies often pass part of the cost on to final prices.
This points to one of the major underlying problems: British productivity has been growing slowly for years. An economy can absorb higher wages without generating inflation if it produces more per hour worked. But if costs rise and efficiency does not improve, the pressure eventually appears in margins, prices or both.
The fourth element, less visible but very important, lies in services. In the UK, a significant share of regulated or administered service prices — such as water, transport, social rents, fees, telecommunications or certain public charges — tends to adjust with a delay or through indexation mechanisms. This means that past inflation can influence current prices. In other words, even if energy or food prices begin to moderate, some services continue to rise because they carry over previous increases.
Brexit adds another layer of complexity. The new trade frictions with the EU — customs declarations, checks, certifications, rules of origin and logistics costs — do not always appear as a visible “tax”, but they can act as an additional source of price pressure. For large companies, these costs can be absorbed more easily. For SMEs, distributors or small importers, they may end up being passed on to consumers.
EU comparisons require caution. Although eurozone inflation has sometimes exceeded the UK’s, the difference lies in the structure. Britain combines import dependence, sterling exposure, labour shortages, weak productivity, energy sensitivity and persistent services inflation. Modest GDP growth—0.4% in 2023 and 1.1% in 2024—alongside falling or stagnant GDP per head has further limited its ability to absorb higher wages and costs.
For citizens, this translates into a loss of purchasing power. For companies, it means more unpredictable costs. And for exporters and importers, it creates a growing need to review prices, contracts, margins, suppliers and market strategies.
Inflation is not just a monthly figure published by the ONS or the Bank of England. It is a signal of how an economy works internally. And in the British case, it reveals an economy that is flexible and global, yes, but also exposed, dependent and burdened by internal costs that are difficult to contain.
The question now is: will the UK continue to face more persistent inflation than its European neighbours, or will it manage to correct its structural weaknesses?