February 6 2025
The Bank of England (BoE) interest rate cut by a quarter point to 4.5% underscores fears of stagflation are real, warns the CEO of global financial advisory giant, deVere Group.
Nigel Green’s warning comes as the UK’s central bank announced its third rate cut in just over six months on Thursday.
He says: “This rate cut signals that the UK economy is facing significant headwinds. While lower borrowing costs might offer temporary respite for businesses and consumers, the underlying problem remains—growth is weak, and inflationary pressures persist. Investors need to be on high alert.”
The BoE’s Monetary Policy Committee (MPC) faced a difficult balancing act. The UK economy has been teetering on the edge of stagnation, with data suggesting little to no growth in the final quarter of 2024.
Business confidence has slumped, corporate redundancies are on the rise, and wage pressures remain firm. At the same time, inflation risks are mounting.
Consumer prices increased by 2.5% annually in December, close to the BoE’s target but still higher than expected. Services inflation, a critical gauge of price pressures, remains elevated at 4.4%, while energy costs are set to rise in the coming months.
“Compounding the problem, the government’s decision to increase employer national insurance contributions and sharply raise the national minimum wage is adding to labour costs, which could translate into higher consumer prices.”
A resurgence in inflation would limit the central bank’s ability to continue cutting rates, further straining an already fragile economy.
Nigel Green continues: “We are seeing clear evidence of stagflation risks materialising. Growth is stagnating, yet inflationary pressures persist.
“This is one of the most challenging economic environments for investors, as traditional strategies that perform well in either inflationary or recessionary conditions may struggle. Now is the time for strategic positioning.”
Global factors further complicate the outlook. The US Federal Reserve has opted to keep rates steady, while the European Central Bank and Bank of Canada have moved ahead with cuts.
However, a global trade war looms large following the latest wave of tariffs imposed by US President Donald Trump on key trading partners.
“For investors, this is not a time for complacency,” says Green. “We’re advising our clients to take decisive action. Diversification is critical, with a focus on assets that can weather both inflation and economic downturns.
“This includes defensive stocks, inflation-protected securities, and select emerging market opportunities that stand to benefit from shifting trade dynamics.”
The bond market reaction to the BoE’s decision will also be closely monitored. A recent sell-off in UK gilts raised concerns about the government’s fiscal headroom, particularly as Chancellor Rachel Reeves prepares for the Office for Budget Responsibility’s forecasts in March.
Higher government borrowing costs could further constrain economic growth, adding another layer of complexity to the investment landscape.
Stagflationary periods are rare but highly disruptive. Those who take action now—rebalancing portfolios, identifying opportunities in alternative assets, and hedging against inflation—will be in a stronger position to protect and grow their wealth.
“The latest rate cut may provide temporary relief, but it doesn’t resolve the deeper economic challenges facing the UK. The risks of stagflation are real and growing.”
