Are you worried about 'stagflation'? Have your say
As pessimism about the UK's economic outlook has grown, some experts have suggested that "stagflation" is taking hold.
This refers to a combination of sluggish economic growth and stubborn inflation.
Bank of England governor Andrew Bailey warned on Monday that stronger-than-expected economic growth data last week didn't change the UK's broader situation.
'We've had the GDP numbers slightly stronger than we thought it would be, but I don't think it changes the general story we have got, which is the economy has been quite static since late spring last year," he reportedly said in an interview.
Figures released by the Office for National Statistics (ONS) last week showed the UK economy grew by 0.1% in the fourth quarter of last year, narrowly avoiding a technical recession — defined as two consecutive three-month periods of declining gross domestic product (GDP).
George Lagarias, chief economist at professional services firm Forvis Mazars, said at the time that even with UK economic surprising to the upside, this wasn't reason to "pop the champagne just yet. The spectre of stagflation is very much alive."
Read more: UK narrowly avoids recession as economy grows 0.1%
"The upside came mainly from the service sector, and in particular professional services," he said. "However, the more forward-looking January PMI [purchasing managers' index] data on British services suggest that orders remain soft, corporate risk aversion high and employment conditions are deteriorating."
Meanwhile, Joe Nellis, economic adviser at accountancy and advisory MHA, said that while there were still reasons to worry about the UK's economic situation, "stagflation" fears were unfounded.
"This comparison is overly pessimistic," he said. "Our current economic malaise — and it is a malaise — is a world away from the stagflation of the 1970s."
He explained that at the height of stagflation in 1974 and 1975, the UK economy contracted by 2.5% and 1.5% each year respectively.
"While the Bank of England lowering its growth forecast to 0.75% is indicative of a slowing economy and offers a disappointing outlook, it is hardly comparable," he said.
In terms of inflation, Nellis pointed out that in the years 1973 to 1979, the annual inflation rate did not drop below 8.3% and was often more than 10%. By comparison, since inflation fell below 3% in April 2024, the rate has not risen above 2.6%.
"The economic landscape is uninspiring, but it's important to remember the full extent of the economic distress that dogged the 1970s before evoking fears of stagflation," he said.
Do you think "stagflation" is taking hold in the UK economy? Vote in our poll below.
Yahoo UK's poll of the week lets you vote and indicate your strength of feeling on one of the week's hot topics. After the poll closes, we'll publish and analyse the results each Friday, giving readers the chance to see how polarising a topic has become and if their view chimes with other Yahoo UK readers.
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