Why is the UK government so afraid of inflation?

Anya Bansal

With the cost of living crisis and prices drastically rising everywhere, inflation seems to be one of the largest issues facing the UK right now. Prices have risen by 10.1% in the twelve months leading up to February 2023. This figure continues to rise month after month and presents a large issue to our country as we see the cost of living forcing people out of their homes. According to the Guardian, more than 66,000 people will be homeless by 2024 due to soaring food and energy bills and the end of Covid eviction bans.

With all of these figures constantly circulating the news, it’s not surprising that the UK government is afraid of the months to come and what damage it will do to our economy. One and possibly the most disastrous effect of inflation is the fact it can lead to a hyperinflation crisis and essentially cripple a country's economy.

One example of such in history is the hyperinflation crisis of Germany in 1923. Following their defeat in 1918, a new constitution and the abdication of the Kaiser, Germany was experiencing many changes extremely quickly and not all of them were positive. Prices had escalated out of control and by Autumn 1923, it cost more to print a note than the note was worth.

Another implication of inflation is protests and demonstrations which we have already seen taking place throughout the UK. Many of us will have been affected, either directly or indirectly by the numbers of bus, train and tram drivers, teachers, nurses and many more workers striking over much-needed pay rises to tackle the ever-growing cost of living crisis. Transport staff, nurses, doctors and ambulance workers, teachers and civil servants are all requesting rises to match or exceed inflation. The Government, however, is concerned that matching these demands would only invite more protests and cause interest rates to rise further.

An international example of similar events entails the rate of inflation rising to 50% a year in Sri Lanka in early 2022. Power cuts and fuel shortages led to protests and things got to such a bad state that schools had to close for a while. Whilst we aren’t experiencing events on such levels yet, there have been some similar occurrences in the UK such as fuel shortages and protests and it’s no wonder that the government is afraid of what this will mean for the country.

Finally, high inflation can mean that there is a worsening in international competitiveness resulting in a fall in exports. This means that jobs can be threatened and international relations can worsen. Whilst this doesn’t seem to be an issue yet due to UK exports having increased by 22.9% over the previous 12 months, it is important to note the loss of exports as a possible consequence of inflation especially when considering international trade.

Overall, the government has many reasons to fear the increasingly rising inflation rates.

Whilst we are nowhere near a crisis on such a large scale yet, the biggest and perhaps most dangerous implication of inflation would be the possibility of it transforming into a hyperinflation crisis. Previous examples in history have shown countries having to completely rebuild their economy due to a hyperinflation crisis however, the UK hopefully won’t reach such a desperate point. Another effect of inflation that we have already seen happening throughout our country includes protests and demonstrations which involve thousands of workers demanding more pay to match the pressures of the cost of living. The last but perhaps the less threatening impact of inflation would be the fall in exports, a great concern to governments as it would result in a diminished ability for the UK to engage in international trade and threaten certain jobs. All of these effects have had disastrous consequences on other countries both recently and in the past and, understandably, the government would want to prevent such things from happening to the UK. It’s highly unlikely that things would spiral into such desperate conditions as those we’ve seen in the past, but with the ever-changing world, it’s hard to keep up with the newly arising challenges and difficulties that constantly face our government. So, to answer the question ‘Why is the UK government so afraid of inflation?’, the fear of a hyperinflation crisis, the seemingly endless protests and demonstrations, and the possibility of a loss of exports are a few of the many reasons to be afraid of and protect the UK from the long-lasting impacts of hyperinflation.