The perfect storm is brewing for UK inflation. Boris Johnson and his government will not admit it, but their choice of a hard Brexit will exacerbate price rises, on top of the effects of the Covid-19 pandemic.
This could put the Bank of England in the unenviable position of having to choose which bubble to burst: consumer prices, or house prices.
As the UK economy hopefully reopens for good following successive lockdowns, the damage caused by Brexit is becoming apparent.
Perhaps the most striking is the lack of lorry drivers, which is creating problems not only for supermarkets (some of which have warned that consumers will start to see empty shelves) but also for home deliveries of various goods.
More than 15,000 lorry drivers of European origin went to their countries and did not return, according to data from various transport companies quoted in the UK press.
Combined with the 30,000 driving tests for lorry drivers that were postponed or cancelled because of the Covid-19 pandemic, this suggests a serious shortage is underway in the profession.
These are sobering figures at a time when lorry driving is becoming crucial for the economic recovery. The shortage of drivers could put up inflation in two ways.
Firstly, because lorry driver salaries are increasing (in some cases by as much as 25%), consumption will rise, putting pressure on prices.
Secondly, because a shortage of various goods in shops seems inevitable due to this, prices of these goods will go up too.
Post-Brexit red tape
The shortages of goods are not caused only by the lack of lorry drivers to take them to the shops. EU citizens, particularly Eastern Europeans, were crucial for British agriculture too.
But with tens of thousands not coming to work in the UK this year — mainly because of red tape post-Brexit, which has pushed them to seek jobs in EU countries such as Germany, or the Netherlands – some produce ends up rotting on the fields.
In a recent Euronews programme, the owner of a farm near Bognor Regis in the south of England said 750,000 courgettes were left to rot.
“Restricting free movement has had a devasting impact,” the farm’s managing director Julian Marks told Euronews. “But not just on agriculture and horticulture – on pretty much every sector where people from abroad have been working in those sectors for years and now. They’re going home.”
Hospitality, social care, even the NHS are sectors that are suffering a shortage of workers post-Brexit. There are reports that some schools in London are closing because the number of pupils has dropped dramatically as people have left due to Brexit and to the Covid-19 pandemic.
This will probably put the Bank of England in an unenviable position. Already, dissenting voices in the Monetary Policy Committee are calling for a tightening of its monetary policy.
If consumer price inflation increases dramatically, the central bank will be forced to do something to tame it, or risk seeing investors voting with their feet.
However, the central bank’s hands are tied by home prices, which jumped following a series of government measures to prop them up in the years since the financial crisis of 2007-2009.
The Bank of England could soon find itself in the situation of having to choose between consumer price inflation and asset price inflation. Trying to tame any of these two issues would almost certainly hurt the economy.