Scholars: UK Faces Stagflation First Time in Nearly 50 Years
11:23 GMT 03.08.2022 (Updated: 15:20 GMT 28.05.2023)
MOSCOW (Sputnik) - Soaring inflation and rising food and fuel prices signal that the United Kingdom is nearing a period of stagflation for the first time since the 1970s, according to a leading think tank, National Institute of Economic and Social Research (NIESR).
"The UK economy is heading into a period of stagflation with high inflation and a recession hitting the economy simultaneously," NIESR deputy director Stephen Millard was quoted as saying by the Mirror newspaper on Wednesday.
A growth of about 3.5% in 2022 and 0.5% in 2023 will be demonstrated by the UK economy, which means the country is going into a long lasting recession that would affect millions of vulnerable households, forcing them to exhaust their savings to pay for necessities, according to the NIESR.
The annual UK inflation rate rose to 9.4% as of July 20, drastically exceeding the 2% target set by the Bank of England, according to the UK Office for National Statistics. NIESR forecasts that consumer price index will reach close to 11%, but will drop back to 3% by the end of 2023.
The NIESR experts believe that the only way to mitigate the rising inflation is to increase interest rates up to 3%, which is nearly double the current 1.25% rate. The next revision of the interest rate by the Bank of England is scheduled for August 4.
© AP Photo / Alastair GrantA screen in a currency exchange showing the latest tourist rates for the British pound sterling against the United States dollar, in central London, Tuesday, Oct. 4, 2016
A screen in a currency exchange showing the latest tourist rates for the British pound sterling against the United States dollar, in central London, Tuesday, Oct. 4, 2016
© AP Photo / Alastair Grant
Since 2021, energy prices in Europe have been rising rapidly following a global trend. After Russia launched a military operation in Ukraine and Brussels imposed several sanctions packages against Moscow, the energy situation deteriorated considerably. Since April 1, the price threshold for gas and electricity in the country has grown by 54%, while energy spending has risen by an average of 700 pounds ($844) a year.