Stagflation is here and the Sunak government looks adrift

ONS data shows Britain in the grip of non-existent growth and record inflation, says Sean O’Grady

Can Rishi Sunak’s government persuade voters it has the right economic plan? (PA Wire)

The term “stagflation” still has an odd, almost theoretical air to it. Everyone’s talking about the cost of living crisis, the labour shortage, strikes, the energy crisis, inflation, higher interest rates, food banks and incipient recession. And the consequent unpopularity of the government. Yet these apparently disparate phenomena are really all just different aspects of that handy portmanteau word: stagflation. It is upon us already.

That the UK is gripped by a lethal combination of non-existent growth and historically high inflation is more than confirmed in the latest growth numbers from the Office for National Statistics. The economy shrank by a worse-than-expected 0.3 per cent in the third quarter of the year – an annualised decline of 1.2 per cent against a “normal” contemporary growth figure nearer to 2.0 per cent, and historical averages between 2.0 per cent and 3.0 per cent.

It doesn’t sound much, but just consider that every 1.0 per cent of annual growth amounts to about £25bn of goods and services for consumption or investment. So to be that far down from trend is a sort of hypothetical permanent loss of going on for £100bn of national income. It is why politicians keep talking about growth, and we should all be concerned about the seemingly intractable problem of low growth in productivity, which has been exacerbated by Brexit.