UK inflation and interest rates high – how do other economies compare?

  • By Darshini David
  • Global Business Correspondent, BBC News

image source, Good pictures

Inflation is still higher in the UK than in many rich countries, so interest rates will remain high for a long time to come.

How is the UK doing in other areas of our economic well-being? Include growth, jobs and taxes and it’s a mixed picture.


For all the talk of low inflation, prices in the UK are 7.9% higher than a year ago. In the European Union, that rate is 5.5%, and in the United States it is as low as 3%.

Britain experienced some of the worst evidence of the price shocks affecting rich nations – energy and food costs fueled by last year’s war in Ukraine and post-pandemic shortages of labour.

Like the EU, the UK is buying more energy – but the effects of the fall in wholesale gas prices are taking longer to show in our inflation figures.

This is because energy support introduced later and price movements will take some time to reflect in the range of domestic bills here.

But so-called “core” inflation, a measure that strips out energy and food, is near its highest rate in 30 years. This suggests that there is still robust spending on non-essentials and treats, as some use savings during pandemics or due to wage hikes.

Interest rates

The Bank of England is targeting discretionary spending when it raises the cost of bank borrowing.

But the impact is different. In the US and some Europe, fixed-rate mortgage contracts typically run for 25 or 30 years. In some, mortgage holders can change contracts with minimal penalties. The French government also effectively controls rates, so a new 30-year mortgage deal costs 3.5%. Those mortgage rates in the US are close to 7%.

It makes more sense to compare the average-effective rates of existing and new home loans. According to the latest published calculations, in the UK, the majority are on two- or five-year fixed contracts, which is less than 3% (although that will rise as more loans are rescheduled). In France and Germany it is less than 2%.

Although inflation has eased here, the Bank of England is expected to raise rates at least once more – and for longer than in the EU or the US.

In terms of growth, Chancellor Jeremy Hunt highlighted that since 2010, the UK has expanded faster than France, Japan and Italy.

But many experts compare it to where economies were before the pandemic. In the spring of his year, Germany and the UK were the only G7 countries with smaller economies than at the end of 2019, according to quarterly official figures.

However, in 2023, the UK was more resilient than some had expected.

Growth may be flat but consumer spending is better – those high wages and epidemic savings are back. It was actually the eurozone that slipped into recession earlier this year.

But higher interest rates engineer a slowdown that will take some time to become apparent. There is concern among some economists that we could now see the UK slip into recession – and others with it.

But we still have to go to play catch up.


Despite the ravages of covid and high interest rates, our job market isn’t too bad. The unemployment rate in the UK, at 4%, is lower than in the EU, although higher than the US’s 3.6%.

But there is more to the film.

To be counted as unemployed, people must be able to find work and look for work. Absents are considered inactive. The UK is rarely one of the wealthiest countries, with hundreds of thousands more inactive than before the pandemic, and especially long-term sick people. The OECD ranks the UK at the bottom of the G7 in terms of labor force participation rates (proportion working or looking for work).

Add in Brexit restrictions and it could mean shortages in some industries. On the other hand, it can increase wage growth – workers can get bigger pay raises.

But if those interest rates bite, unemployment could also rise.


Our country’s income, as a proportion of GDP paid to taxpayers, is currently at a post-war record of 37.7% by 2028.

Feeling short? Our tax burden was actually lower than the EU average, although the latest comparable numbers are higher than that of the US. The tax man in France already gets 45 cents for every euro in the economy there.

But most countries face greater pressures on their public finances, thanks to aging populations and existing debt.

It’s been a tough few years across the board, but there are some areas where the UK will feel particularly short-changed.

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