With GDP growth underperforming expectations and higher inflation, the UK could face stagflation.
Poor old UK – beset by a never-ending series of politically unfortunate events from Johnson’s government, it now has slower pace of growth to contend with too. The UK economy grew much less than forecast in October only rising 0.1% from the previous month versus forecasts of a 0.4% advance. With the hastily enforced additional Covid restrictions now in place following the outbreak of the Omicron variant, it seems that the direction of growth now has to be much flatter. Of course, with flatter growth, the need for the Bank of England to act on rate policy becomes much more difficult to quantify. Previous expectations of a rate hike this month have now been kicked into the long grass despite inflation remaining high. Slowing growth and increasing inflation, the true definition of stagflation, is a risk for the UK over the next few months. Coincidentally the last time we saw this economic regime in the 1970s saw the advent of the misery index, a measure of just how badly people were feeling the effects of a stagflationary economy. It’s an apposite index for this Tory government, who must all be feeling pretty miserable with defending the indefensible on a worryingly continual basis.
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