Report

Target practice

Think tank: Onward

Author(s): Ned Hammond; Laurence Fredricks

July 29, 2024

This report from UK think tank Onward looks at supply side solutions to deliver stable prices and overcome economic stagnation.

“Inflation makes us all poorer”, Rishi Sunak repeatedly highlighted as the UK was hit by sky-high inflation in the wake of the pandemic and Russia’s invasion of Ukraine.

The Conservative Government achieved its aim to halve inflation in 2023. And reaching the Bank of England’s 2% target shortly before the election is a noteworthy element of their economic legacy. But the UK remains perilously exposed to future price shocks.

The twin drivers behind the inflation crisis remain unsolved: gas dependency and food insecurity. The UK is Europe’s fourth most gas dependent nation. Gas provides 40% of our energy. It generates a third of our electricity, compared to Germany’s 16% and France’s 9%. More than eight in ten British homes rely on gas boilers to stay warm. And farmers depend on it for fertiliser and heating greenhouses, driving up food prices and wiping out farm profits.

We also rely heavily on food imports, with 84% of the fresh fruit and 45% of the fresh vegetables on supermarket shelves grown overseas. Extreme weather, made more frequent and intense with climate change, is already hitting food production.

New trade barriers with the EU have further complicated the situation. These vulnerabilities are partly why the UK experienced the highest inflation of any G7 nation over the last three years. Inflation may be back on target, but the UK economy is far from secure.