Will the UK flirt or witness both a recession and stagflation this year?
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| The last time the UK saw a recession was the end of 2023. I'm sure some of you reading this wouldn't have known that and that's because it was classed as a 'shallow' or 'technical' recession (similar to what Germany has been dealing with since the pandemic), meaning the economy wasn't growing but wasn't in deep contraction territory either.
During the pandemic, the UK was in recession for 6-months (which was expected as a services nation facing uncertain times) and we saw the economy shrink by a huge 20%. The recession of 2008 lasted for 15-months and the UK (plus many other nations) still hasn't fully recovered from it.
A recession is probably on the cards this year for the UK after GDP for January arrives at -0.1% (+0.1% expected and down from +0.4%) and with the world in a state of chaos. But just like the previous one, it shouldn't be too much to worry about. Stagflation on the other hand is lurking and is a different story ..
Stagflation is a combination of high inflation, slow economic growth and higher unemployment and generally leads to a prolonged period of economic hardship. It's a recession with high prices and costs to service debt (not too dissimilar to the current environment) and there is no quick cure. The 1970's was the last time the UK witnessed stagflation.
A recession usually sees interest rates lower and stagflation will see interest rates sky high. Both scenarios are bad news for a currency related to the country being affected. We will hear more at the BoE meeting next week where (for now) interest rates are expected to remain unchanged.
For now, March's trend continues with the Euro stronger and the Dollar weaker still and the Pound playing the confused middle-man.
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