Are we heading for 'stagflation light'?

A nasty combination of rising inflation and economic stagnation, it led to Britain being branded the 'sick man of Europe'. Millions struggled to cope as the cost of living soared, the economy flatlined, and wages failed to keep pace. Jim Callaghan's attempt to keep prices under control by limiting pay rises led to widespread industrial unrest, culminating in the infamous Winter of Discontent.

So news that the British economy could be heading for 'stagflation light' is worrying indeed. Yesterday's rise in inflation to three per cent, a full percentage point above the Bank of England's target of two per cent, comes days after news that the economy grew by just 0.1 per cent during the last three months of 2024.

It is important to keep a sense of perspective. While the three per cent rise in inflation is unwelcome, it is still comparatively low by historic standards, and certainly nothing like the double-digit price rises that were the norm for much of the 1970s. At the same time, it leaves the Bank of England with little room to cut interest rates, which will do little for Britain's growth prospects.

The after-effects of the coronavirus pandemic, and the ongoing war in Ukraine continue to cast a shadow over Britain's financial prospects, although the actions of the Government since taking office have hardly helped. Rises in school fees as a result of the imposition of VAT are said to be a contributory factor, and the food industry had already warned of rising food prices ahead of the impending rise in National Insurance.

We don't seriously expect to see a return to the gloom of chaos in the 1970s. But equally, these latest figures give little cause for optimism.

Only last month, the Chancellor Rachel Reeves said that without economic growth, the Government would be unable to improve the lives of ordinary working people.

We could do with seeing some green shoots soon.