Competitiveness of the UK

The wall street journal has reported that food costs are rising in the UK at a faster rate than anywhere else in the world and these can be blamed in part for the significant rises in inflation, food prices were 12.9% higher in September on the same period the previous year. The rising inflation takes money out of the pocket of the consumer and thus less money is spent within the economy, having knock on effects, particularly rising unemployment. The reason for such high food inflation can be partly blamed on the small farming sector of the country, in comparison to other countries such as France and the USA. The UK runs at a trade deficit of -1% for food, whilst the USA just about breaks even and France trades at a surplus. The UK has recently been hit by falling exchange rates against major economies, meaning that goods and services are becoming more expensive to purchase from other countries. To put this into perspective the UK currently purchases 70% of its food from Europe. Gas and Electricity have also risen sharply in the UK, in fact almost twice as much as the EU average, with prices rising 29.7% over a year compared with the EU average of 15%. Figures from OECD claim that German bills have increased by 12.2% and French bills have increased by 14%.
The exchange rate of the British pound has suffered against the currencies of other leading economies, meaning that the purchasing power of British people has suffered, helping to push up prices of goods and services, such as food which has already been mentioned. To emphasise the changes, in March 2008 the pound would purchase $2USD, but as of 19th December 2008 it is would purchase just $1.48USD. The picture is much the same with the Euro, with £1 buying 1.34 Euros in January 2008 but just 1.07 Euros by mid December.


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