UK Expects Sustained Stagflation (A Recession)

The threat of a sustained “stagflation” leading to a recession in Britain has increased after consumer costs surged more than anticipated while GDP slowed to a creep.

Recessions have far-reaching implications on households as well as living standards.

Because of greater costs and less demand, firms are more likely to job-cut, lessen pay, or reduce work staff hours – each of which can cause more unemployment.

As the risk of job losses and rising costs for key essentials grow, more people become likely to not meet payments for essential bills like housing rent, food, energy bills, or even clothing – triggering a rise in poverty.

Also, when workers or benefit claims do not get more for their money to meet the demands of inflation, it causes a pay cut.

Recent economic data from official and informal sources reveal low GDP beneath analyst forecasts, indicating worries that a recession is coming for 2022.

Rise in Living Expenses

The news that a recession is very, very high arrives as some experts say the British government hasn’t upheld its responsibilities for steering households through its cost-of-living crisis which has happened due to soaring consumer inflation. Coalition opposition say chancellor Rishi Sunak is responsible for not properly supporting households struggling as energy and food prices rise.

The term stagflation coins the reduced growth in GDP in tandem with growing inflation, which is a pretty rare economic situation that puts more pressure on households and firms.

Just a while back, official data showed that consumer prices were climbing yearly at 7 per cent in March, the fastest pace since 1992. And, the GDP also slowed to a creep at only 0.1 per cent in Feb, meanwhile living wages, adjusting for inflation, tightened by a percentage point.

This data demonstrates an increased odds for a stagflation circumstance for the UK economy, says Paul Hollingsworth, an economist with consultancy BNP Paribas Markets.

While Ed Monk, director for Fidelity, an investment management firm says that, yes, stagflation was upon them like a grim reaper hunting the British economy.

Most economists foresee a situation where inflation will grow to over 8 percent in Q2, while the growth in energy price limits for households in April grew due to industry regulations, and may climb even higher after October revisions occur.

How Close is the UK to a Recession?

A recession is defined as the occurrence of two consecutive quarters that see negative economic products for GDP, which measures the total value of all goods and service productions.

Indeed, many things can cause a recession, such as too much debt or inflation, and it's both of these things causing the current recession, with inflation the most pressing focus.

Retail shops found in city centres indicate clearly that business is becoming more of a challenge in these times seeing as many have been forced to shut down due to financial challenges as the British Retail Consortium says that growing energy prices in Britain will cause shoppers to be more cautious over the next few months combined with a rise in living costs (a living wage crisis), added to growing inflation, flatlined wages and growing costs for consumer goods since February 2022. As these costs grow including mortgage and rents, taxes, food and fuel, UK consumers are bracing for a challenging year that will certainly require a tightening of their purse strings. 

As inflation grows, in real terms, the power of each pound also decreases in real time – which means consumers and businesses will see greater costs, with less to spend with, or more will try to save rather than to spend.

Which means there's an imbalance between how many goods and services are actually being bought, against the number of products and services being offered, and so the price of each product inevitably climbs, which causes the economy to shrink.

Lesser growth can also mean less investment, which worsens the situation even more.

Once a recession goes on for a long time it’s referred to as a depression – the US Great Depression in the 1920s to the 1930s is one of the most well-known. This depression lasted for a decade and was caused by the Wall Street stock market crash of 1929.

Britons need to brace themselves for the chances of a recession due to growing inflation and rising energy bills and the possibility of a depression.

The country is facing a crisis of living standards with household cash flow struggling to meet the spike in living costs.

Director of research for Energy Aspects, Amrita Sen, thinks that the threat of the UK entering into a recession is extremely high.

She believes that the odds of a recession is very high because it isn’t just about just oil and gas, it’s also about raw materials such as fertilisers, as well as food. Which she says means that although most people are not aware of a recession yet, it’s probably around the corner. 

The British Chambers of Commerce also believes that, after announcing this month, the risk of recession is growing, meanwhile the National Institute of Economic and Social Research agrees but believes it is more likely to occur in the second half of 2022 if energy prices continue at this level.

The Institute for Fiscal Studies agrees that 2022 is likely to be bad, but says it will be even worse than the financial crash of 2008 to 2009, saying that the slowness of chancellor Rishi Sunak to implement urgent economic interventions to protect households could have a large-scale impact.