UK faces ‘stagflation’ warning amid rising costs and faltering growth
The UK’s private sector grew slightly in the first weeks of the year, but business confidence kept falling amid warnings of job cuts and rising inflation, according to a survey of firms.
Economists warned that the UK is facing a period of so-called “stagflation”, a period where prices are rising but economic growth and employment are stagnant.
The S&P Global flash UK composite purchasing managers’ index (PMI) reported a reading of 50.9 for January, ahead of December’s figure of 50.4.
While the figure is a three-month high, and came in ahead of economist expectations, businesses taking part in the poll said they were still concerned about cuts to employment amid falling sales.
Concerns
The reading will add to concerns of lagging economic growth and a weakening jobs market after Chancellor Rachel Reeves raised employment taxes for businesses in the October Budget.
The flash figures are based on preliminary data. Any score below 50 indicates that activity is contracting, while any score above means it is growing.
The uptick in activity was largely down to growth in the service economy, which makes up the majority of Britain’s private sector, while the smaller manufacturing industry contracted slightly.
But the costs facing companies continued to grow, with so-called input cost inflation hitting its highest level since May 2023, while business confidence fell for the sixth consecutive month.
And employment continued to fall across the private sector, continuing a trend which started in October last year, economists said.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The first indicators of business conditions in 2025 add to the gloom about the UK economy, with companies cutting employment amid falling sales and concerns about business prospects.
“Inflation pressures have meanwhile reignited, pointing to a stagflationary environment which poses a growing policy quandary for the Bank of England.
“While output growth ticked higher, the improvement does little to move the dial on a speedometer which points to an economy that is broadly flatlining.
“The subdued business activity seen in January was accompanied by sustained downbeat business optimism about future prospects, the mood remaining the darkest seen for two years, and a further worsening of the demand environment, as reflected in falling order books.”
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This is hardly news. We’ve had stagnation for the last two or three years already. The big question is how to get out of it. At the moment all of the normal indicators for future growth are low. Ironically, the only indicator for future growth which is positive is the fact that we’ve got high migration!
You can only get growth by investment.
When the government set up social security system to fund people in old age and/or disablement they should have place the people’s National Insurance payments into a retirement fund which could in the meantime be used for investment.
Funding pensions from today’s decreasing workforce is going to mean debt.
I have recently retired and receiving state pension.
Will it still be paid in ten years time at the same value ?
I agree, but it is private sector investment where the bulk of the problems are in the UK (and private sector investments are typically 70-80% of all investment type activity). The UK is right at the bottom of most developing nations – and Wales does badly in the UK. Some political stability will help – and this government provides that But ultimately as most firms in the Uk are in foreign ownership, the low investment levels simply reflect the fact that companies cannot make sufficient returns on their investments in the UK. Why it is – so many reasons. Worth… Read more »
“Why it is – so many reasons”
Can you list a few?
Off the top of my head – it is a Saturday and I am travelling. The UK private sector is very diverse, first of all, so many companies have unique circumstances. Clear strategies for specific industries in particular around net zero is needed. Lack of access to long term funding especially for SMEs/start ups. UK banks have less savings to play with than in other countries(!). Lack of investment from pension firms is a challenge. The government could do more around corporation tax reforms and tax incentives for R&D, at least be competitive and mindful about other nations’ strategies. Buildings… Read more »
Diversity is good because it means economic resilience. That shouldn’t be unattractive to investors. There’s absolutely a lack of strategy, such as no industrial strategy. This comes from a history of “laissez-faire” government that wrongly thinks government should leave the private sector to do its thing. This isn’t what happens in more successful economies and I think lies at the root of this problem. Tax and incentives should be comparable to global peers. Is the UK an outlier? What’s fundamentally different about banking here that makes it more difficult for SMEs? If it’s a lack of savings, does this stem… Read more »
Sell off the roads to get the debt down. Bring back the turnpikes. End roads socialism.
Silly boy
It “worked” for Thatcher. What’s the difference between roads and water?