growing, a dangerous combination that economists call stagflation. our business correspondent theo leggett reports. at harry king & sons near ipswich, they've been building and repairing small boats for 170 years. it's a highly skilled job, and all the work is done by hand by a small team of craftspeople. but for owner sarah curtis,

running the business is becoming increasingly difficult. wages, obviously, is the biggest cost. electricity, which has doubled — notjust the unit price, but the standing price has doubled. that will have a significant impact on our business, because we can't pass that on. material costs have gone up — anything between 5% and 25%. again, we can pass some of that on, but not all of it. so all of those things will impact our profit and our ability to grow as a business. means it's increasingly difficult to make ends meet. food shopping — that's almost doubled in price. energy, gas and electricity. especially in wintertime.

it's definitely vulnerable people — myself included — where we have to have the heating on, can't cope with the cold — i wouldn't be able to we want it on or not. and it'sjust... you dread it, you dread it. inflation has fallen sharply from the very high levels seen a couple of years ago, but now it seems to be

but at least these january numbers look much worse than they actually are, relative to where we were in december. so where does that leave us with the cost of borrowing here in the uk? obviously, that is closely linked to the rate of inflation. that's right. the bank of england would like to get interest rates down, but they are cautious because we all remember what happened last time. a bit of inflation turned into a lot of inflation. i still think the bank of england will look at the underlying

fundamentals in the economy and say prices over time will trend lower, even if we have this bump due to energy prices this year, and so i think we will probably get two more interest rate cuts this year. march is too soon. probably may and then august and then towards the end of the year, let's see how much inflation the bank of england has to deal with, and they will decide whether they can go further or not. because there are a lot more inflationary factors on the horizon coming in april when the energy price cap changes and also those new employer tax increases come into effect. how bad could it get? well, we have to be a little careful. ifind that thinking around this is muddled. people seem to be afraid of no growth, unemployment and inflation — basically everything goes wrong. it will not be like that. we will either have pricing power because the economy is strong, in which case we have an inflation problem but probably not an unemployment problem because firms can pass those costs onto consumers.

where we have no growth, unemployment but much less inflation. in which case the bank of england can react. this is very different from 2022. stagflation is not the right word. it is unlikely to be what we see here. there are also difficult to measure risks on the horizon. geopolitical risks. when you look at what is happening in gaza but also when you look at the potential, the beginnings of negotiations on a russia—ukraine peace deal. how could that play out when it comes to the prices we pay at the shops? that is a great question. when it comes to the gaza issue, i don't think it is playing a major role in shaping global commodity and energy prices. it hasn't been as destructive to energy markets as previous middle east conflicts have been. when it comes to russia and ukraine, if we were to get some end of fighting, what you would find is markets would take off considerable inflation risk.

we would hope at some point, some russian gas may find its way into parts of europe to bring down global gas prices, so that will probably be positive for inflation and help interest rates come lower. but if they don't get a settlement, then we would be worried about risks in the other direction. president trump has launched another salvo in his ongoing trade war. he told reporters on tuesday that he intends to impose tariffs of around 25 percent on car imports, along with similar duties on pharmaceuticals and computer chips. it's the latest set of measures that are threatening to upend international trade. in foreign markets, and that his policies will bring jobs back to america. because of what we're doing economically and through tariffs and taxes and incentives, they want to come back into the united states. and we'll be announcing various very large companies — the biggest, actually —

and they'll be coming back having to do with chips and having to do also with cars and lots of other things. we're going to be announcing some very, very big... very big, momentous — i think momentous — decisions being made by companies all around the world — the biggest — and they want to come back into the us.

let's go! the border with ukraine is just 16 miles away. they're already learning the lessons, the return of trench warfare. but they also know they could be called on to help secure a peace in ukraine. this brigade is absolutely ready. my brigade back in the uk is ready. but clearly what that force package would look like would be dependent upon what the prime minister and the minister of defence would like, but we are ready. but you couldn't do it on your own?

absolutely not. i think the prime minister has been very clear that the uk would contribute to efforts, but absolutely not doing it on our own. from training in trenches in romania to potentially real ones in ukraine, keir starmer has said he's ready and willing to put british troops in harm's way, if necessary, to secure peace in ukraine. but the question is, does britain, does europe, notjust have the will, but the numbers, too? this is nato's largest exercise of the year, involving 10,000 military personnel from eight european countries. that's just 10% of the numbers that many defence experts say will be needed to police any ceasefire in ukraine. the us, nato's most powerful military partner, is not directly involved in the exercise, and the trump administration says it won't be putting any us boots on the ground in ukraine

either, a worry for allies. in the end, it is only the us that can provide the deterrence to putin that will prevent him attacking again. afghanistan was the last big test for the british army. even that stretched resources for a regular army that was then more than 100,000 strong.