Without a proper plan, stagflation will be the least of Britain’s problems | Larry Elliott

Rising prices and recession mean the last thing the government should do is muddle through and leave everything to the market

Inflation is back with a vengeance. The cost of living has not been rising this fast since the Falklands war. Prices are climbing faster than wages. In every respect bar one, this is clearly bad news. The best that Britain can hope for in the months ahead is a period of stagflation: weak growth and rapidly rising prices. If things get really bad, we could be on course for an incession" - high inflation combined with a recession. Either way, the outlook is grim, especially for those on the lowest incomes, who spend most on energy and food, for which price increases are heftiest.

The one consolation is that high inflation acts as a national wake-up call. Or at least it should do. For far too long, the UK has drifted along convinced that all is well because cheap imports from China are keeping inflation low and rock-bottom interest rates are fuelling a house-price boom. It would be nice to think we have finally woken up to reality. But that in itself is an illusion. Just as in the 1970s, the economy's structural weaknesses have been exposed by a period when prices are hurtling upwards.