Stagflation? The UK Economy in 6 Charts

We're updating our charts after the chancellor's spring statement

James Gard 23 March, 2022 | 2:25PM Sunniva Kolostyak
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Rishi Sunak with Spring Statement

Last October we looked at a snapshot of UK economy after the 2021 Budget. Let's revisit the key charts in the light of today's spring statement and the latest economic statistics.


Around the time of last year’s autumn Budget, the Bank of England was predicting inflation would peak at 5% this year. At the time interest rates were 0.10%. Fast forward to March 2022 and there have been three interest rate rises, and the Bank itself is now expecting inflation to hit 8%, and potentially higher by the end of 2022.

Still, it thinks that the rise in the cost of living will slow in the coming years as energy prices fall back. The latest figures from the Office for National Statistics (ONS) show February CPI hit a 30-year high of 6.2%. In today’s spring statement, the Office for Budget Responsibility (OBR) said inflation will average 7.4% this year but could hit nearly 9% following Russia's invasion of Ukraine.

A reminder: the Bank’s inflation target is 2%. Of course, the Ukraine war has supercharged the inflation dynamic and debate. The cost of living is now the biggest issue in the UK economy, more than growth, retail sales and jobs.


The UK economy made a strong recovery in 2021 from the 2020 slump, the fastest in the G7, but that came after the worst performance since 1709 during an extraordinary cold snap in Europe known as The Great Frost.

In 2021, UK GDP grew by 7.5% after a 9.4% contraction in 2020. Now the economy is just above its pre-Covid-19 levels and the OBR is forecasting a rise of 3.8% this year – much higher than the post-financial crisis average, but still a sharp downgrade from its previos forecast of 6% in 2022.

We’ll get the first-quarter figures at the end of April but the ONS now also produces monthly figures. A rebound in services helped GDP grow by 0.8% month on month in January, which is consistent with the easing of coronavirus restrictions following 2021’s Omicrom scare.

Unemployment, Wages and Tax

Unemployment is below pre-Covid-19 levels for the first time, another example of the UK economic recovery from the pandemic. As our second chart shows, the OBR's unemployment forecast is now lower than in October 2021. Still, wages are lagging rising prices, according to the latest data.

We only have figures in the three months to January, so we lack post-Ukraine invasion data. Payroll data is more timely, with the latest figures out on March 15. The ONS has some good news on this front: all age groups saw an increase in payrolled employees between February 2021 and February 2022.

The number of payrolled employees rose by 5.5% compared with February 2021, an increase of 1,556,000 employees. Looking at the chart below, the steep rise in payrolled data suggests the 30 million watershed is not too far away.

Last year the talk was all about labour shortages and the effects of the furlough scheme. In 2022 the focus will be on how salaries are falling short of soaring inflation, and whether employees can leverage this new reality to get pay rises.

Tax rises are coming in April and we have a round-up of all the new tax year’s changes here. Today's changes to National Insurance thresholds (due in July) in the spring statement have changed the dynamic again. It is thought they will help lower and middle income households in the short term. The chancellor also announced plans to cut the basic rate of tax to 19% by 2024. The OBR says that today's government plans will undo a sixth of the planned tax increases. It's effectively taken away with one hand and given back with the other.

Growth of the Morningstar UK Index

Looking at the chart below without knowing the news, you wouldn't think Europe had witnessed history in the making with Russia's Ukraine invasion. 

But that’s been the way of global markets: there was a steep sell-off in late February, but it’s now “business as usual”. It helps that the UK is full of the stocks the market currently values highly: energy, financial services, cash generative defensive companies. The Covid-19 sell-off looks much more dramatic than the Ukraine war in terms of chart moves. 

The stock market is not the real economy, though, so while it's sadly clear many households are struggling financially, UK plc seems in good shape.

Retail Sales

With the cost of living soaring and tax rises on the way in April, analysts are cautious for the prospects of retail this year. Throw into the mix geopolitical uncertainty, Brexit fallout and interest rates rises, shoppers may be right to be cautious. As the OBR points out today that 2022 will be the worst year for living standards since the 1950s: "Real living standards are set to fall by 2.2% in 2022-23 – their largest financial year fall on record – and not recover their pre-pandemic level until 2024-25."

Some caveats: the billions saved by some people during the pandemic are yet to be spent. Plus, people planning home improvement projects may bring them forward out of fear that raw materials may be even more expensive in 2023. Like the pandemic, the cost of living squeeze is likely to affect different people disproportionately – wealthier shoppers are likely to continue spending whatever happens.

There’s evidence of resilience in the latest retail figures – sales grew by 1.9% in January, double expectations. And retail sales are 3.6% higher than February 2020, the last month before lockdowns blighted the sector (although it led to a boom in online sales). Department stores and garden centres did well in January, the ONS said. The February retail sales figures are due on March 25, and they are expected to show a 7.8% increase year on year and 0.6% month on month.

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James Gard

James Gard  is senior editor for


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