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According to the National Institute of Economic and Social Research, the British economy is on the threshold of a recession. Some reports suggest that the country is already heading towards stagflation, as the cost of living crisis has devastating consequences for household incomes. It is also projected that unemployment could exceed 5% in the next 12 months.
No surprise, the number of bankruptcies in the country is skyrocketing. In the 12 months to May this year, 1406 restaurants closed in the UK. This is 64% more than in the same period last year. The economic downturn is attributed to staff shortages and the rising cost of living. The number of insolvent businesses is now 28% higher than in Q2 2019.
Overall, things don’t look good for the country. But, how did it happen? Primarily, because of higher prices for goods imported from Europe due to Brexit, rising energy prices, and the tightening of fiscal policy. In this context, the think tank NIESR called on the new Prime Minister to increase direct aid to the poorest households instead of prioritizing tax cuts.
As for the market, the British pound has lost over 11% to USD in the last 6 months. UK 100, on the other hand, has lost only 1,6% during the same period of time. This divergence could be mainly explained by the export-oriented nature of the benchmark index. In terms of perspectives, a mix of recession and higher interest rates could lead to an increase in the number of bankruptcies.
It is also true that the UK is not the only country facing economic challenges. In fact, due to the high dependence on Russian energy, the supply of which to European countries has recently decreased, the international rating agency Moody’s has revised the outlook for the economies of Italy, Slovakia and the Czech Republic from “stable” to “negative”. The only question is if all the risks are already included in the price.
