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United Kingdom: The country faces the risk of stagflation

bnp-paribas-eco-perspectives economics-business-work Apr 27, 2026 source →
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United Kingdom: The country faces the risk of stagflation

Claims from this story

Every atomic assertion extracted from the underlying record, ranked by evidence strength.

The UK has little fiscal headroom to address its economic situation in 2026.

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The UK's economic suffering in 2026 is attributed to its dependence on imported commodities.

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The UK economy is projected to suffer in 2026 following a strong performance in 2025.

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Inflation in the UK is expected to remain persistently above the Bank of England's 2% target.

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The Bank of England is expected to raise its key interest rate by 25 basis points in Q2 and then in Q3.

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The Bank of England is expected to lower its key interest rate again in 2027.

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The United Kingdom grapples with a structural trade deficit.

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The United Kingdom is reappraising its 'special' trade relationship with the United States.

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The United Kingdom is expected to continue its strategic rapprochement with the European Union.

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GDP growth in the UK accelerated to 1.4% in 2025, up from 1.1% in 2024.

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Private consumption contributed 1 percentage point to UK GDP growth in 2025.

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Public and private investment contributed 0.8 percentage points to UK GDP growth in 2025.

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Investment in digital and new technologies drove UK GDP growth in 2025.

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The UK's trade balance deteriorated in 2025.

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UK growth reached 0.1% quarter-on-quarter in Q4 2025.

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Private investment in the UK declined in Q4 2025.

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High uncertainty limited output for two thirds of firms in the UK, according to a CBI survey.

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The energy shock caused by the war in Iran is expected to weigh on the UK economy.

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Input costs and supply lead times have tightened significantly in the UK.

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UK growth in 2026 is expected to be mainly supported by the increase in public spending planned in the Budget.

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The United Kingdom appears to be one of the European countries most exposed to a rise in commodity prices.

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The UK has notably low gas stocks.

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The size of the public deficit limits the ability of UK public finances to support household purchasing power.

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Upward pressure on long-term interest rates limits the ability of UK public finances to support household purchasing power.

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UK GDP growth is expected to be affected by -0.3 percentage points compared to the initial scenario.

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The unemployment rate in the UK rose to 5.2% in November 2025, an increase of 1.6 percentage points compared with the low point in June 2022.

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The unemployment rate in the UK is tending to stabilise around 5.2%.

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There is a significant deterioration in unemployment among young people in the UK.

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The youth unemployment rate in the UK was 16% in December 2025, an increase of 6.3 percentage points since June 2022.

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The number of job vacancies in the UK fell to 721,000 in February 2026.

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Job vacancies in the UK dropped by around 45% since early 2022.

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The number of unemployed people per vacancy in the UK rose to 2.6.

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Recent geopolitical developments have added further uncertainty to the UK labor market.

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KPMG/REC surveys report a decline in recruitment (both permanent and temporary) in the UK.

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Recent PMIs indicate a slight contraction in private-sector employment in the UK.

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Rising unemployment has started to weigh on wages in the UK.

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A decline in UK competitiveness, with wages rising faster than in other European countries, has started to weigh on wages.

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Wage growth in the UK has slowed significantly.

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Weekly wages excluding bonuses in the UK rose by 3.5% year-on-year in February 2026.

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Weekly wages including bonuses in the UK rose by 3.7% year-on-year in February 2026.

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February 2026 wage growth in the UK is the lowest level since the post-COVID period.

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Wage growth in the UK is likely to fall back below inflation.

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Inflation in the UK is estimated to stand at 3.3% year-on-year in March, an increase of 0.3 percentage points compared with February.

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Inflation in the UK is expected to rise further, coming close to the 5% year-on-year threshold in January 2027.

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Seven out of twelve inflation components in the UK still exceeded 3% year-on-year in February 2026.

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Core inflation in the UK is expected to be pulled upwards and will once again exceed 4% by the end of 2026.

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Rising energy prices have caused rebounding inflation in the UK.

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Fossil fuels (almost exclusively oil and gas) dominated the UK's energy mix, accounting for nearly 76% in 2024.

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The UK imports nearly 70% of its gas.

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UK oil production covers around 55% of demand.

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Almost all (95%) of the fuels used in the UK have passed through an import stage.

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The UK's gas stock levels cover less than two days of average national consumption due to limited storage capacity.

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UK oil stocks are limited at the International Energy Agency's minimum reserve requirements.

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The peak in UK inflation is expected to be more moderate than in 2022.

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The current environment in the UK is less conducive to second-round effects due to the post-COVID catch-up phase being over, an eased labor market, tighter financial conditions, and limited fiscal support.

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There has been a complete U-turn in the UK's monetary policy outlook, shifting from ongoing easing to the prospect of tightening prior to the war in Iran.

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UK inflation picked up again after a brief return to the Bank of England's target in 2024.

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UK inflation is not expected to return to the Bank of England's target in the short-to-medium term.

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Inflation expectations (BoE business survey) in the UK rebounded to 3.5% over 12 months, an increase of 0.5 percentage points month-on-month.

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The Bank of England adopted a more hawkish tone following its March monetary policy meeting.

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