From home heating to beer, staggering energy costs are fuelling Britain’s inflation crisis | CBC News

Britons are struggling to absorb the staggering implications of their country’s inflation crisis, with fuel and energy costs set to skyrocket up to three times higher than they were in the spring.

Milk prices are already up more than 33 per cent year over year; fruit juice and tinned vegetables have risen by more than 15 per cent.

And a pint of beer in a London pub could soon jump from the current £7 to £10. By next year, a £14 pint — that’s more than $20 Cdn — may not be out of the question.

Economists watching the eye-popping prices believe there’s still much worse to come.

“Inflation is everywhere,” said Sanjay Raja, a Canadian-born economist with Deutsche Bank who monitors the U.K. economy. “It’s energy inflation. It’s food inflation. It’s services. And they are all tracking at extraordinary levels — that’s the worrying thing.”

U.K. inflation is already at 10.1 per cent, the highest rate of any country in the G7. The Bank of England is predicting the rate will rise to above 13 per cent in the weeks ahead, and some predictions have inflation hitting close to 19 per cent by January 2023.

WATCH | Inflation is hitting Europe hard:

U.K., Europe heading for recession as inflation continue to climb

The EU and U.K. economies are in shambles, with a recession now almost certain. Inflation is ravaging household budgets in Britain and Europe where, unlike in Canada, the worst price hikes are likely still to come.

The impact of higher prices is being felt across the country, but in Britain’s less-well-off communities, the effects are  especially pronounced.

“We’re feeding 13,000 people a month. And I think that number is just going to carry on increasing,” said Neil Charlick, chief executive of Gillingham Street Angels, a charity in this city of 100,000 people about 60 km east of London on the Thames estuary.

‘People are struggling’

Charlick’s non-profit operates a food bank, thrift shops and clothing exchanges that have been surging of late as higher food and energy bills bite.

“A massive amount of people are coming for stuff; people are struggling that much. People are wanting cups, plates, bowls, bedding, I think just basic items, essential items that we all take for granted,” Charlick told CBC News outside one of his charity’s food banks.

When CBC visited this week, even during a rainstorm people formed long lines outside, waiting for the chance to pick up fresh eggs and vegetables that had been donated by Morrison’s, one of the city’s major supermarket chains.

Under a tent, several people flipped through racks of donated school uniforms — shirts, pants and blazers. To buy a set new would be £136 (about $200 Cdn), said Lisa Dineen, who has four school-aged children who need them.

“School uniforms are a big deal,” she said. “I’m struggling to pay for the bills, pay for gas, electricity and feed my children at the same time.”

Inflation is “distressing, to be honest,” said Sophie Young, who is in her 50s and lives alone. She said mental health challenges make it difficult for her to work and the rising prices have made it nearly impossible to buy what she needs on her tiny fixed income.

“I’m so frightened,” she said.

Energy cap rising

The latest blow came Friday morning, as the U.K. energy regulator Ofgem confirmed a cap imposed on residential energy bills will soon shoot up by 80 per cent.

In April, energy costs for a domestic household in the U.K. were capped at an average of £1,971 ($3,018 Cdn) annually. As of October, the cap will rise to £3,549 ($5,435) annually, or £300 ($450) a month. 

The cost and cap rates are expected to keep rising, with some forecasters suggesting by April 2023, it will hit £6,616 ($10,131) — an increase of almost 300 per cent in a single year.

The higher cap is meant to allow British energy suppliers to pay higher wholesale gas prices on the international market. 

The energy hikes will have huge implications for the country’s inflation rate. 

A mix of domestic, international factors

The economic crisis is partly homemade and partly the result of the war in Ukraine, which has driven up global energy prices, particularly for natural gas.

Prior to Russia’s invasion of Ukraine in February, Britain imported just four per cent of its energy supplies from Russia, says Prof. Karen Turner of the Centre for Energy Policy at the University of Strathclyde. But with Russia choking off gas to the rest of Europe in retaliation for harsh sanctions, Turner says the war has set up fierce competition for the remaining supplies.

“Obviously, you have countries like Germany that have been heavily dependent on Russian gas. If they are not getting their gas from Russia, then they are competing on the same markets as we are,” said Turner.

While every country in Europe is struggling with the same inflationary challenges, Britain’s energy shortage is especially acute, as more than 40 per cent of its electricity is generated from natural gas.

By comparison, Europe overall gets closer to 25 per cent of its electricity by burning gas. In Canada, the amount is closer to 10 per cent.

Turner says renewable energy, particularly wind power, offers Britain a way out of its gas dependency, but the transition is still years away.

“People are still heating their homes with gas, so getting a huge amount of green electricity isn’t going to help them do that,” she said.

Britain’s ruling Conservative party, which is in the midst of a leadership race to replace outgoing Prime Minister Boris Johnson, has been divided over how to respond to the inflation crisis.

Johnson said Tuesday that British consumers would have “to stay the course” in order to “defeat the evils of [Russian President Vladimir] Putin.” Among British voters, the appetite to continue helping Ukraine remains strong.

A promised ‘pipeline of cash’

But the Tories have faced criticism for not doing more to help consumers. The head of a major Scottish electrical utility has proposed freezing energy bills for two years and providing energy companies £100 million to cover their losses, a plan that is deeply unpopular with some groups, who view it as a massive corporate bailout.

Instead, Johnson’s caretaker administration has suggested a “pipeline of cash” will soon be coming to help consumers, but precisely what that will look like will be a decision for Johnson’s successor.

Leadership hopeful Liz Truss has said she will broadly cut taxes, while former chancellor Rishi Sunak has said he will reduce the VAT (or sales tax) on energy bills and give money to poorer households to help them cope. The opposition Labour Party has vowed to spend more than £29 billion ($44 billion) to freeze energy rates at their current level.

Whatever the response, Raja, the Canadian economist, says the country will still likely feel significant economic pain.

“We’re not quite convinced that any sort of fiscal support that we do get … will be enough to avert a mild recession at the very least,” said Raja.

Pricey pints

The price cap announced Friday by the British gas regulator does not apply to business, and the association that represents Britain’s 47,000 pubs, for one, is warning the consequences for the industry will be dire.

“The reality is energy is a huge part of what is stopping us being profitable right now. And it could cripple pubs and those pubs may close, and close for good,” said Emma McClarkin, chief executive of the British Beer and Pub Association.

“My brewers have seen huge increases in their energy bills as well as their cost inflation throughout their supply chain.”

The war in Ukraine has driven up international prices for all types of grains and hops used by British brewers, as much of the world’s supply comes from either Ukraine or Russia.

Only one in three British pubs is profitable, says McClarkin, and energy hikes could wipe that out.

Of late, British tabloids have been full of dire stories about how high a pint of beer might go. McClarkin says a £10 pint ($15 Cdn) is certainly a possibility, but at some point she says customers will simply stop paying.

That’s already happening with certain meals in pubs, she says, noting that an eight-ounce steak at a pub down the road is £35 ($53).

“Not many people are going to pay that for a steak,” she said. “So some [pubs] have taken steak off the menu altogether.”