The Economic Times Editor: Stagflation is the worst of all worlds to a normal working household. It is seen when slowing or negative growth and high unemployment coincides with inflation. It eats away at discretionary spending first, then into household budgets for essentials whilst potentially threatening your livelihood.

Stagflation is, as so many analysts now predict – something of a foregone conclusion for many countries around the world and the UK is very much included in those forecasts.

The UK economy grew a paltry 0.1 per cent in February just as rising costs, surging energy bills and higher taxes piled on the pressure to reduce spending and investment.

Growth was down sharply from the 0.8 per cent recorded in January. The UK is now in a slow economic spiral that will head towards a recession. Don’t forget, the economy is still growing but from a low base – and the speed of that growth has dramatically slowed up.

Inflation was 7 per cent in the year to March. It is expected to reach around 9 per cent at its peak  – however, unemployment is low, at 3.8 per cent. From 2000 to 2021 the number of people in full-time work rose from 20.4mn of the working-age population to 24mn. After the bank-led financial crisis in 2008, just over one million people lost full-time jobs, which took six years to recover from. Whilst that crisis was a quick shock to the global economy, stagflation is a slow-burn affair.

Analysts’ and economists’ opinion is, for the time being, divided on whether we have already entered stagflation, are on the verge of it, or could hit it in the future. But whenever it officially arrives – it will have serious consequences for your investments.

I found this really informative chart from The Times/Sunday Times via Schroders. It is just about the only chart you need to see to give a great idea of where your investments should be at times of economic change.

 

 

Imogen Tew is a senior money reporter for The Times and The Sunday Times, having joined from the Financial Times Group. Her advice is as follows:

“If you are a long-term investor with a diversified portfolio, you are not likely to need to make any big changes, or any changes at all, to your investments — part of the reason for creating a diversified portfolio is so you do not have to alter it when the investment landscape changes.

A diversified portfolio will have exposure to assets such as bonds, cash, commodities and property as well as equities. It will also have a mix of the “defensive” stocks that are tipped to do well in a period of stagflation (such as energy and utilities) and other, more growth-oriented stocks, as well as a mixture of different bond types and investments from various countries.”

One thing to note from this chart is where the top performers are in times of economic strife. And as that is exactly where the economy is heading – real assets – as in tangible assets, is where investors go. Property and gold are the obvious choices – oil is another.

Commodities (raw materials or primary agricultural products that can be bought and sold, such as copper or coffee) have been returning handsomely at 18.1 per cent since 1988 during times of stagflation, according to Schroders. Gold has also done really well by returning 14.1 per cent and property or REITs (real estate investment trusts) around 9.5 per cent.

If you are well off enough to buy into property, the return on capital is one thing, the monthly income another and that is why buy-to-let is so popular.

The other point to look at with this chart is when coming out of stagflation and entering a period of growth – commodities and property do just as well. Recession is another matter. So the question is – stagflation or recession?