An expert has issued a stark warning as the UK economy has sent a worrying signal.
Nigel Green, CEO of financial advisory firm the deVere Group, said that the country is “staring down the barrel of the stagflation gun”, with stunted growth and persistent inflation combining to create “one of the most challenging financial environments in over a decade”.
Mr Green also highlighted that, this week, the 30-year gilt yield hit a “staggering” 5.25%. This was its highest point since the 2008 financial crisis.
A gilt is a Government liability denominated in sterling that is issued by HM Treasury and listed on the London Stock Exchange.
The Government guarantees to pay the gilt holder a fixed cash payment coupon every six months until the maturity date, at which point the holder receives the final coupon payment and the return of the principal.
Index-linked gilts are different from conventional gilts in that the semi-annual coupon payments and the principal repayment are adjusted in line with the UK Retail Prices Index (RPI) with a lag.
Rachel Reeves’ deputy, Darren Jones, has said that the Chancellor will not break her promise to borrow money only for investment, and not to pay for day-to-day spending, in the face of high gilt levels.
Rising UK borrowing costs threaten to make it much harder for Ms Reeves to meet her fiscal rules, The Guardian reports.
Market turmoil this week sent UK borrowing costs higher, and the pound lower. This triggered calls for the Chancellor to cancel her trip to China.
Mr Green said: “Stagflation’s grip on the UK has been exacerbated by weak domestic growth, which under normal circumstances would prompt the Bank of England to lower interest rates.
“However, with inflation still uncomfortably high, policymakers find themselves in a precarious position, hesitating to make moves that could further weaken the pound and worsen price pressures.”
He added: “For Chancellor Rachel Reeves, the situation is particularly dire. Her key fiscal rule—eliminating all non-investment borrowing by 2029—now hangs in the balance, as rising interest payments on debt eat into the Treasury’s capacity to act.
“Achieving this goal will demand either politically challenging tax increases or deep public spending cuts. Both measures will hurt economic growth, amplifying the stagflationary spiral.
“The rise in gilt yields signals growing investor caution about the UK’s economic outlook.
“Higher borrowing costs are creating ripple effects across sectors, from property to retail, as businesses and consumers alike face higher for longer interest rates. At the same time, the weakening pound, spurred by fears of stagnation, makes UK assets more attractive to international investors.
“For global investors, the UK’s predicament is not just a warning—it’s a call to action. Stagflation may erode domestic purchasing power, but it also opens the door to undervalued opportunities in key sectors, particularly for those with a long-term strategy.
“Fixed-income securities are more appealing given their higher yields, especially for those seeking safe havens in a turbulent global economy.”
