Stagflation is engulfing the UK economy, showing what could lie in store for the US and Europe
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Talk about stagflation is growing in the US, but it's the UK economy that's likely to stall soon.
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Britain already faces the highest inflation rate in the G7 — and it's predicted to climb even higher.
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Soaring energy prices, rising interest rates, tax hikes, and Brexit are battering the UK economy.
Talk of "stagflation" — the dreaded combination of stagnant growth and rampant inflation — is growing louder in the US after the economy shrank for two quarters running.
Sure, inflation is red-hot, and the economy is dangerously close to a recession. Yet many still expect the next two years to deliver relatively strong growth, and that's after a rapid rebound from the coronavirus crisis.
Over the pond in the UK, however, things are different. Economists say Britain is barreling towards a period of stagflation, with growth expected to slow to a crawl next year.
UK inflation rocketed to a new 40-year high of 9.4% in June as fuel prices surged, official data showed. That's higher than in any of the other G7 countries — Canada, France, Germany, Italy, Japan, and the US. It's likely to top double figures before the year is out.
Soaring prices, rising interest rates, tax hikes, and Brexit are all hitting the UK economy at once. The country's gross domestic product will grow just 0.7% next year, for the worst performance in the G7, private-sector economists polled by Bloomberg predict.
The Bank of England is even more pessimistic. It thinks GDP is likely to shrink slightly in 2023, and grow just 0.25% the following year.
Meanwhile, economists expect the US economy — which fared much better during COVID — to expand 1.3% in 2023. And they think eurozone GDP will increase by the same amount.
The UK's leaders are under pressure
For policymakers in the US, and the better-performing European economies, Britain contains a warning of what could be coming if things go wrong.
Leaders in the UK are under growing pressure over the bleak outlook. Rail workers, lawyers and mailmen are striking as the cost of living spirals higher. Consumer confidence has plunged.
In fiery TV debates this month, Boris Johnson's potential successors as UK prime minister inadvertently trashed the government's economic record.
"All your bills, every month, they're going up and up and up," said Rishi Sunak, who led the UK's economy ministry over the last three years. The other candidate, Foreign Secretary Liz Truss, said the UK faces "the worst economic crisis in a generation."
Energy bills reach eye-watering levels
At the heart of the UK's woes is an inflation rate that is outstripping that in other rich countries, and is likely to keep rising this year.