The UK could be at risk of stagflation after the International Monetary Fund (IMF) slashed its economic growth forecasts and warned the global outlook has “abruptly darkened”. In its latest outlook, the IMF cut its UK growth prediction for 2026 to 0.8%, down from 1.3% forecast earlier this year. Growth for 2027 was also downgraded to 1.3% from 1.5%. At the same time, inflation is now expected to remain higher than previously predicted, averaging 3.2% this year and 2.4% next year.
Rising energy prices, driven by tensions in the Middle East and disruption to global supply routes, are a key factor behind the forecast. The IMF warned the global economy is at risk of being “thrown off course” and said a severe escalation could bring the world close to recession. As a result, economists are increasingly warning about the risk of stagflation.
Stagflation is widely regarded by economists as one of the most difficult economic conditions to manage. The term combines “stagnation” and “inflation” and describes a situation where prices rise rapidly while economic growth slows and unemployment increases.
Samuel Fuller, director of Financial Markets Online, told the Express: “Stagflation keeps economists and central bankers awake at night. In economic terms, it’s the worst of all possible worlds – it makes everyone poorer and destroys jobs.
“And to make matters worse, once an economy slips into stagflation, it can be very hard to snap it out of it.
“But it’s not just an arcane bit of economic theory. Everyone feels it – the cost of living rises, but wages don’t keep pace, and struggling companies may shed staff or even go bust.”
Mr Fuller added: “The war in the Gulf has got everyone worried because it has delivered the twin ingredients of stagflation – a jump in inflation and a slowdown in growth.”
Angeline Ong, senior investment analyst at IG Group, also said stagflation represents a breakdown in the usual economic pattern. She told the Express: “Stagflation is one of the most punishing economic environments because it combines the worst of both worlds – weak growth and persistently high inflation.
“Normally, when an economy slows, prices ease. In stagflation, that relationship breaks down as households face rising costs at the same time as job opportunities shrink.”
She added: “Stagflation is typically triggered by supply shocks – such as surging energy prices or geopolitical tensions – combined with policy missteps. In the context of escalating conflict in Iran, the concern is that higher oil and commodity prices will feed inflation just as growth slows.”
For households, the impact can be severe. Ms Ong said: “For everyday Brits, the impact is immediate and painful. Pay packets don’t stretch as far, bills continue climbing, and job security weakens.
“Businesses, squeezed by higher input costs, are often forced to either raise prices or cut back, and that can mean fewer jobs or reduced investment. Pensioners and those on fixed incomes are hit particularly hard, as inflation erodes spending power faster than support can keep up.”
Sebrina McCullough, director of external relations at Money Wellness, added that the concept may sound technical, but its effects are easy to recognise. She told the Express: “Stagflation might sound like jargon, but for most people it simply means your money doesn’t go as far as it used to.
“With stagflation, prices go up, but wages don’t keep pace. So the weekly shop costs more, bills stay high, and there’s less left at the end of the month.
“For many households, this is a worst-case scenario. Normally, when prices rise, pay or job opportunities improve too, but stagflation takes that away. You’re paying more, without earning more.”
She added: “It’s often driven by things like rising energy costs or global shocks, like the war in the Middle East, that push prices up while slowing the economy. The problem is, it’s hard to fix.
“Measures used to bring prices down, like raising interest rates, can push up mortgage payments and borrowing costs. At the same time, efforts to boost the economy can risk pushing prices even higher. That leaves households caught in the middle, facing more pressure either way.”
Katy Phillips, senior brand and communications manager at idealo, said the situation creates a “double squeeze” for consumers. She told the Express: “Stagflation is one of the most challenging economic environments because it combines three difficult conditions at once: rising prices, slow economic growth and higher unemployment.
“Normally, inflation happens when the economy is growing, but stagflation flips that on its head. Everything becomes more expensive while incomes and opportunities stagnate.
“For households across the UK, stagflation can feel like a ‘double squeeze’. Everyday essentials such as food, fuel and energy bills increase in price, but wages don’t keep up. This reduces spending power and forces many families to cut back or rethink how they budget.”
She added: “In practical terms, consumers may notice their weekly shop costing more, higher borrowing costs on mortgages or credit, and fewer discounts as businesses struggle with rising costs themselves. It can also mean delaying big purchases or trading down to cheaper alternatives.
“We would always encourage shoppers to price compare before buying anything, big or small, to ensure money is being saved where possible in these tricky times.”
Mr Fuller also warned that the coming months will be critical for the UK economy. He said that constrained oil and gas supplies could push inflation higher while weak growth raises recession risks.
However, he added that there is still hope that inflation pressures could ease over time if global tensions stabilise and central banks adjust policy carefully.