![]() At the same time doing nothing is also far from optimal. Sweeping fiscal stimulus is likely only to mean an outsized monetary response and a weaker long-term recovery. Overall, policy faces a tricky trade-off between risks of a self-propagating recession on the one hand, and a nominal de-anchoring on the other. Notes: Trend business investment growth is based growth between 19. UK – Spending on Gas and Electricity (% GDP), 2017-2025 We expect that to mean a limited consumer driven recession over the coming quarters, despite additional support. In each case, this implies price pressures today and crimped incomes tomorrow. Recent increases in energy prices compound established increases in both food and core goods prices. The predominant driver of the economic outlook here is the large terms of trade shock. And worse likely remains ahead, with our forecast suggesting that GDP will fall by 0.7% through 2023. The UK is the only G7 economy not to have re-attained its pre-Covid level by the second quarter of 2022. The UK begins in a relatively weak position. With monetary and fiscal policy still at loggerheads, the risk of further financial disruption remains acute in the months ahead. The coordinated sell off in both gilts and sterling reflect growing concerns about both the health of the economic recovery and the viability of the UK’s policy approach. The UK is the talk of the town, and not in a good way.
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