The world’s fifth-largest economy faces an unhealthy mix of slowing growth and rising inflation. Official data show that inflation in the UK peaked in April in 40 years at 9%. And although the Bank of England was the first of the major central banks to raise interest rates in December, the predicted future path is now much less steep than that of some of its global counterparts, including the US Federal Reserve.
The UK, of course, has a few unique factors that put additional strain on the pound. One is the possibility of a messy trade conflict with the European Union if Britain threatens to move ahead with a law to set aside parts of a post-Brexit trade deal for Northern Ireland. Then there is an increase in the tax burden, which followed a massive temporary relief for sectors that were struggling during the pandemic and which has affected workers and employers who were already saddled with rising utility bills, slowing the economy even more.
The likelihood of a recession in the UK is almost certain, because there is simply too much headwind for the economy.