The UK is dangerously close to falling into a “stagflation” loop after pricing data once again shot through forecasts and factory gate inflation hit a 14-year high.
Inflation reached 7% in March, official data shows, and factory gate prices surged by 11.9%. That was the highest reading since September 2008 and up from 10.2% in February.
Raw material costs for manufacturers jumped by 19.2%, the biggest leap since records began.
The data suggests inflation is set to climb even higher in the coming months, with many in the City now expecting a peak above 10%.
Susannah Streeter at Hargreaves Lansdown said inflation figures had stoked “worries about stagflation setting on the UK economy, with growth in the economy slowly grinding to a halt.”
“Stagflation” is where inflation surges as growth stagnates, creating a dangerous economic slump that is difficult to break out of.
GDP numbers this week showed the economy was already flat-lining in February. A recovery is not expected in the short-term and economists at Deutsche Bank and RSM have warned that a recession could be on the cards.
Ed Monk, associate director at Fidelity International comments “The spectre of stagflation stalks the UK economy.”
The Bank of England expects inflation to peak around 8% but Paul Craig, portfolio manager at Quilter Investors, said “The Bank has underestimated the extent of inflation in previous forecasts and given this month’s increase, there could be even worse to come than previously feared.