UK heading into stagflation as cost-of-living crisis deepens

The UK is heading into a period of stagflation with high inflation and a looming recession dealing a double-blow to the country as a winter of economic misery approaches, National Institute of Economic and Social Research (NIESR) warned today (3), stating inflation will soar to “astronomical” levels over the next year.

In its latest quarterly outlook of the UK economy, NIESR warns that CPI inflation is anticipated to peak close to 11 per cent in the fourth quarter of this year, when energy bills across Britain are expected to soar over £3,000 per year. 

It predicts the UK will enter a recession this quarter – which will last until the first quarter of 2023 – pushing up unemployment. This would worsen economic inequality across the country, scuppering the Levelling Up agenda.

NIESR sees the gap between London and the rest of the United Kingdom widening, as the West Midlands, and parts of Wales and Scotland continue to fall further behind.

One in five households will be left without savings by 2024, as the cost-of-living crisis hits, states the outlook.

Those soaring prices mean average real household disposable incomes would shrink by 2.5 percent this year, as wages fail to keep up with inflation, warns NIESR, adding that vulnerable households will be worse hit. 

“All households are facing soaring energy and food bills but too many have to resort to credit, build up payment arrears or see their savings wiped out,” Professor Adrian Pabst, NIESR’s Deputy Director for Public Policy, told The Guardian.

“The incoming administration needs to provide immediate emergency support to the 1.2 million hardest hit households and the one-in-five households that will become financially vulnerable as the energy price cap is lifted and the recession begins to bite.”