As the UK economy faces the threat of ‘stagflation’ in 2025, concerns about a recession are growing.

More than half of Britons believe the UK will fall into recession in 2025, according to new polling data.

About 57% of those surveyed thought the economy would slow down next year.

Additionally, only 53% expected inflation to fall below the Bank of England's target rate of 2%.

Data from Ipsos shows a gloomy outlook for the coming year as the UK economy faces serious challenges.

The latest GDP figures show the economy contracted in both September and October 2024. If economic activity does not improve in December, economists will be watching closely to see whether the UK officially enters a recession in the first three months of 2025.

The pound fell to its lowest level in seven months against the dollar, and the growth rate hit zero in the third quarter, adding to concerns as the economy is showing signs of a recession after the summer of 2024.

The Bank of England also expects no economic expansion in the final quarter of the year, pushing the economy closer to a technical recession (two consecutive quarters of negative economic growth).

The bank has already been cautious in its approach to interest rate cuts, having cut rates only twice in 2024.

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This is a sharp contrast to early 2024, when the economy showed a healthy rebound in the first quarter, growing by 0.7%. Sluggish growth over the past few months has led analysts to suggest the government may have to introduce an emergency budget in spring 2025 to raise taxes to address the situation.

The government's current economic plans, which rely heavily on growth, could be at risk if growth continues to disappoint. The Labor Budget from October 30 has caused concern, particularly due to a sharp rise in national insurance premiums for employers and plans to increase the minimum wage level next year.

Many companies have already warned that they will have to raise prices in response to this policy change. These price increases could push inflation above 3% by the spring of 2025, according to market observers.

Policy changes will also affect employment, making it likely that companies will withdraw hiring. These developments have raised concerns about economic conditions, combining stagnant growth and rising inflationary pressures.

“Businesses are clearly opposed to the policies announced in the Budget, particularly plans to increase employers’ national insurance contributions,” said Chris Williamson of S&P Market Intelligence.

The OECD still expects the UK to grow by 1.7% in 2025, but economists are increasingly concerned about a recession in the UK.

Laith Khalaf, head of investment analysis at AJ Bell, warned that with the economy stalling, stagflation is now the watchword for 2025.

“Everywhere you look, the green shoots of an inflation revival seem to be pushing up the grass,” he said. “While the inflationary forces are gathering, the Bank of England will not be keen on cutting interest rates.”

The bank has already been cautious in its approach to rate cuts, cutting rates only twice in 2024 – to 5% in August and 4.75% in November.

The central bank emphasized that it will only take a 'gradual approach' to future interest rate cuts.

The wider economic outlook for 2025 appears equally worrying, with UK sentiment lagging the global average.

Only 41% of Britons believe the global economy will be stronger in 2025 than in 2024, according to an Ipsos survey.

This figure is 10 percentage points lower than the global average of 51% and highlights particularly strong pessimism among UK residents.

The optimistic outlook follows a tough 2024, with inflation briefly falling to target before rising again to 2.6% by November.

Despite two interest rate cuts this year, persistent inflation concerns and weakening economic data have dampened hopes for a strong recovery in 2025.

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