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(Investorideas.com
Newswire) a go-to platform for big investing ideas, including gold and
silver stocks issues market commentary from deVere Group.
The Bank of England needs to be honest and flag the risk of
stagflation in the UK—not just “unavoidable”
higher inflation, warns the CEO of one of the world’s largest
independent financial advisory and asset management organizations.
The warning from Nigel Green of deVere Group, which has $14 billion under advisement, comes as the Bank holds
interest rates at 3.75% while signalling that inflation will rise
again this year due to escalating geopolitical tensions in the
Middle East and surging energy prices.
“The narrative coming out of the Bank of England appears to be
incomplete,” he says.
“Framing this as solely an ‘unavoidable’ inflation
problem driven by external shocks misses the bigger and more
dangerous picture.
“The UK faces a credible risk of stagflation, and policymakers
need to acknowledge and be honest about this.”
The Bank’s Monetary Policy Committee voted 8-1 to keep
borrowing costs unchanged, despite inflation rising to 3.3% in March
and expectations just months ago that it would fall back to the 2%
target by mid-year.
Since mid-2024, rates have been cut six times, and markets had
anticipated further easing in 2025 before the conflict in the Middle
East disrupted the outlook.
Energy prices are once again at the center of the inflation story.
Higher oil and gas costs are already feeding through to households
and businesses, squeezing margins and eroding real incomes.
Yet the impact does not stop at inflation.
“Energy-driven inflation is classic stagflation
territory,” explains the deVere CEO.
“It pushes prices higher while simultaneously weakening
growth. Consumers spend more on essentials, businesses face rising
input costs, and investment slows. You end up with an economy
that’s under pressure from both sides.”
The UK economy is already vulnerable. Growth has been sluggish,
productivity remains weak, and households continue to feel the
effects of an extended cost-of-living squeeze. A renewed inflation
impulse risks compounding these pressures at precisely the wrong
moment.
“Growth in the UK is fragile. It doesn’t take much to
tip it into stagnation,” notes Nigel Green.
“At the same time, inflation is being driven by forces outside
the Bank’s control. This is exactly the combination that
creates a policy trap.”
Such a trap leaves central banks with limited room to maneuver.
Raising rates to combat inflation risks choking off already weak
growth. Cutting rates to support the economy risks allowing
inflation to become embedded.
“This is the dilemma the Bank of England is now facing. And
it’s why the language matters.
“Downplaying a stagflation risk doesn’t change the
reality. It only delays the necessary conversation about how to
respond.”
Markets are beginning to adjust. Expectations for aggressive rate
cuts have been scaled back, and investors are reassessing the path
of monetary policy in light of persistent inflation pressures.
“The shift has implications across asset classes, from gilts
to equities and the pound.
“Investors need to be clear-eyed about what is
happening,” adds Nigel Green.
“This is not a straightforward inflation cycle where central
banks can fine-tune demand and bring prices back under control. The
drivers are structural and geopolitical, and they are far harder to
manage.”
He continues: “A stagflationary environment changes the
investment landscape significantly. It raises volatility, compresses
margins, and challenges traditional portfolio allocations.
Positioning has to reflect that reality.”
The chief executive also stresses that credibility is at stake.
Central banks rely heavily on managing expectations, and any
perception that risks are being understated can undermine
confidence.
He concludes: “Higher inflation combined with weak growth is a
dangerous mix. Policymakers need to recognize it, communicate it,
and prepare for it.
“Anything less leaves the UK exposed at a time when clarity is
essential.”
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