The scenario is “apocalyptic”: word of the Governor of the Bank of England, Andrew Bailey, who is not inclined to hyperbole. The choice of the term indicates that the situation is serious. Slow growth coupled with high inflation puts Britain in the grip of stagflation, but the real risk is that it will degenerate into a full-blown recession.
Consumer confidence collapses
The latest in a series of negative data, released on Friday 20 May, shows that UK consumer confidence plunged to a nearly 50-year low in May, hitting -40, the lowest level on record. In 2008, in the midst of the great crisis, it had dropped to -39.
According to Joe Staton, director of GfK, the company that conducts the survey every month, “consumer confidence is now weaker than in the darkest days of the global financial crisis, Brexit or total closure due to the pandemic.”
Inflation at 9% in April
The figure is worrying for a consumer-based economy like Britain’s, but it was expected after soaring prices and the sharp rise in the cost of living in recent months. Inflation rose to 9% in April, peaking since 1982, when Margaret Thatcher was prime minister. The BoE’s own prediction is that it will exceed 10% in the fall, accelerating at the fastest pace of the G-7.
The most obvious cause of the increase in inflation is the increase in energy prices following the war in Ukraine and the decision by Ofgem, the regulator, to remove the cap imposed on the cost of electricity and gas, which has boosted utility bill costs by 54% in April, with a further 40% increase expected in October.