Stagflation is back in 2025.
You might remember it from the history books – the 1970s OPEC oil embargo that sent prices soaring while the economy ground to a halt.
This time, the cause isn’t oil. It’s people.
Minimum wage rises, higher National Insurance contributions, and big corporates tempting away staff with salaries small firms can’t match.
Add suppliers passing on their own cost increases while customers resist price rises, and you’ve got the perfect storm: margins under pressure from both sides.
So, what exactly is stagflation, how does it compare with other economic downturns, and what can you do to protect your business?
What is stagflation?
In plain English, stagflation is when prices and costs rise significantly while the economy stagnates.
Productivity is low and inflation is high, causing people’s relative earnings to decrease. Meaning you feel worse off.
For business owners, that translates into higher wages, higher taxes, and bigger supplier bills, without any easy way to recover those costs from clients.
Stagflation vs Recession vs Inflation: What’s the difference for businesses?
The jargon gets confusing, so here’s a simple way to think about it using something we all understand: the price of a coffee.
- Inflation: Coffee rises from £3 to £3.50. You’re paying more, but wages tend to rise too, so earnings often catch up over time.
- Deflation: Coffee drops from £3 to £2.50. Sounds good, but usually demand has collapsed and cafés are struggling to survive.
- Recession: Coffee stays at £3, but fewer people are buying it because wages are tight and the economy is shrinking.
- Stagflation: Coffee jumps from £3 to £3.50, but wages don’t keep up. You’re paying more while feeling poorer, and cafés can’t raise prices further without losing customers.
That’s why stagflation is so painful. It’s the one scenario where both businesses and consumers feel the pinch simultaneously.
How can you protect your business against stagflation in 2025?
You can’t control government policy, wage bills, or the wider economy. But you can control how you run your business.
To simplify it we’ll look at two key areas: managing people costs and plugging operational leaks.
People: managing rising staff costs under stagflation
- Automate repetitive admin
If staff are bogged down in repetitive tasks, you’re paying more for less. Automate where possible and redirect people to revenue-generating activities. - Measure actual output per person
Don’t assume the loudest employees are the most productive. Often, it’s the quieter ones delivering the most. Put your strongest people where they make the biggest difference.
- Protect your top performers from corporate poaching
Corporates will try to tempt them away with a big salary. Put a rewards scheme in place and build a workplace they don’t want to leave. Give them responsibility, recognition, and growth opportunities.
- Build succession plans and upskill
If a key member leaves, you shouldn’t be left scrambling to replace them. Develop skills across your team so you’re not reliant on one individual.
Operations: stopping margin leaks
- Audit your client profitability
Not all revenue is profitable revenue. Identify which clients are truly profitable and focus resources there.
- Review your product and service margins
Some lines can absorb rising costs better than others. Track margins by service line and spot problems before they become losses.
- Monitor creeping overheads
Suppliers are passing on their own cost increases. Those “small” rises add up fast. Keep a close eye and renegotiate early.
- Focus on higher-value work
Not every job is worth winning. Be firm on your walk-away price and commit to projects that deliver genuine profit. - Strengthen your pricing strategies
Clients will question increases. Don’t just defend them, remind them of the value you bring. Whether that’s saving them time, protecting their compliance, or providing expertise they can’t access elsewhere.
How businesses can regain control during stagflation
Stagflation makes it feel like you’re running your business for everyone else – staff, suppliers, HMRC – before yourself.
But you’re not powerless. By tackling people costs head-on and closing operational leaks, you protect your margins and regain control.
The key is having visibility over these areas before problems escalate.
At Avant Advisory, we help clients implement reporting systems that track these metrics. Our Power BI dashboards instantly show you where margins are under pressure and highlight opportunities to improve efficiency.
If you’re currently making decisions on instinct rather than insight and want to see what your real-time numbers reveal about your business, get in touch.