A very British phenomenon – inflation is the price we will pay for Brexit

Higher interest rates and automation are likely to result from artificial wage hikes, argues Sean O’Grady

Empty promises: the Brexit effect has created supermarket shortages (Getty)

One of the strangest consequences of Brexit may turn out to be the return of that old British disease – endemic price inflation. Perhaps “project fear” should have made more of this back in 2016, but at any rate the exodus of EU workers from the UK labour market has resulted in well-publicised shortages – of lorry drivers, in the care sector, in agriculture and much else. These, in turn, have created shortages of other products, including, as The Independent reports, Ikea furniture, building materials, milk, groceries and even beer, ironically in pro-Brexit Wetherspoon establishments. It all means higher costs and, thus, higher prices or lower profit margins (which will hurt investment and future growth in productivity and prosperity).

As the British eventually learned to their cost back in the 1970s, when inflation eventually topped out at 27 per cent and was rarely lower than 10 per cent a year, one person’s pay rise is another person’s price rise. When prices rise there is increased pressure on employers to raise pay rates still further, passing on the extra cost in price rises (or smaller portions or less well equipped, stingier product offerings). A handsome increase in the wage packet is soon eroded by a concomitant rise in prices, leaving earnings in real terms stagnant, but harming competitiveness and distorting the economy. Profitability also usually suffers.