Stagflation Ravaging the UK, Sign of Whats to Come for US?

For May, Jobless claims in the United Kingdom rose 19,600. That comes after a jump of 16,900 in April, according to

. Most alarming is how sharply the data caught economists off guard. Bloomberg surveyed 22 economists and found that the median expectation was an increase of 6,500. The actual data was over 300% greater than expectations. While the job market in the U.K. deteriorates, inflation is becoming a problem. The consumer price index in the U.K. presently sits at 4.5%, which is more than twice the Bank of England's 2% target rate, according to

. Inflation has yet to show up in the wages of workers in the U.K., as wages grew just 2% in the past three months. To an extent, that fact is both negative and positive. Slowing wage growth with rising inflation is negative, as consumers in the U.K. will feel their budgets squeezed. Yet, it is simultaneously positive as it may indicate that workers have not raised their inflation expectations. If inflation expectations remain low, the inflation rate itself may remain low. The data may have had a strong effect on the exchange rate between the British pound and the U.S. dollar, as the GBP/USD pair fell roughly 0.76% on Wednesday. Investors may be seeking safety in the greenback. The U.S. dollar, however, might not be an ideal safe-haven. Industrial production in the U.S. was roughly unchanged for the month of May, rising only 0.10%. With poor economic growth and rising inflation in the U.K., the country may be experiencing "stagflation" a dreaded period where the

while inflation grows. Both the U.S. and the U.K. struggled with stagflation in the 1970s. Ultimately, under conservative governments (Thatcher in the U.K., Reagan in the U.S.) and tight monetary policy prescriptions, stagflation subsided. But this is not the 1970s. The U.K. has had a conservative government since May 2010, and its policies of austerity have seemed to only exacerbate the economic trouble, according to

. With

in the U.S. and poor industrial production numbers, it will be interesting to see if the U.S. follows the U.K.'s lead.