Is stagflation coming for the UK?

This week, a US economy that had been expected to grow in the first quarter of the year was recorded as having shrunk 0.4 per cent – a stunning fall, raising awkward questions about what might come next. This morning, it emerged that the Eurozone grew by just 0.2 per cent over the same period, with inflation in both the US and Europe topping seven per cent.

For weeks now, investors in America have been spooked by the ‘inverted yield curve’: a technical term, but one which carries certain implications. When this happens (i.e., short-term government bonds become more valuable than long-term ones) recession often follows. Every US recession for the past 50 years has done so after the yield curve inverts.

America is ahead of Britain when it comes to the global economic slowdown. Discussion in Britain still focuses around the words ‘cost of living crisis’, but it is perhaps only a matter of time before these are pushed aside by the word ‘stagflation’: when growth stagnates, inflation soars and unemployment rises too.