The UK economy is staring down the barrel of the stagflation gun, with stagnant growth and persistent inflation combining to create one of the most challenging financial environments in over a decade.

This is the stark warning from Nigel Green, CEO of deVere Group, as this week the 30-year gilt yield hit a staggering 5.25%—its highest point since the 2008 financial crisis—underscoring the scale of the issue.

For him, “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.

Nigel Green continues: “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.”

While stagflation is a daunting challenge, it also forces innovation and adaptation.

“For investors with ties to Britain, this is the time to reassess portfolios, hedge against inflation, and identify sectors that can thrive in a stagflationary environment. History teaches us that industries such as energy, healthcare, and tech have shown resilience, even in periods of economic stagnation.

“The gilt market itself is worth watching closely. The recent yield spike suggests a shift in sentiment, but for those who act decisively, these higher yields could lock in significant returns over the medium term.

“Similarly, the weakening pound, while a burden for imports, is a boon for exporters and foreign investors looking to acquire UK assets at a relative discount.”

Nigel Green concludes: “The looming spectre of stagflation may sound like a warning bell, but it’s also a call for decisive action. The UK’s challenges are real, but so are the prospects for those who think globally and act strategically.”