The possibility of the UK sinking into a recession over the next year or two has increased amid soaring inflation, a leading investment banking company has warned.
J.P. Morgan economists warned on Friday that “given the nature of the UK economy, we see high vulnerability to external shocks beyond the near term and see increasing chances of a recession over the next one to two years.”
“If the (US Federal Reserve) engineers a sharp growth slowdown or recession, this would spill over to the UK and, combined with a tightening in domestic financial conditions, likely produce a UK recession,” the company economists added in their statement.
The development came after the Bank of England (BoE) hiked its main interest rate for a fifth straight time on Thursday, as it forecasted inflation to soar further this year to above 11 percent.
The BoE raised the cost of borrowing to 1.25 percent, the highest level since the global financial crisis in 2009. The pound slumped one percent against the dollar following the announcement.
Currently, inflation in Britain stands at nine percent – the highest level in 40 years – causing a cost-of-living crisis for millions of Britons.
According to the data published by the Office for National Statistics (ONS), the soaring inflation across the country has caused the value of wages to fall at the fastest pace in more than a decade.
“Pay in real terms is falling at its fastest rate in over a decade,” with UK inflation at a 40-year high, said ONS Head of Economic Statistics, Sam Beckett.
Meanwhile, the unemployment rate across the UK has also risen to 3.8 percent, with record-high vacancies seeking for employees, the ONS said in its statement.
“With inflation hurtling towards double digit territory, many workers are increasingly finding that their wages are not stretching wide enough to meet the bumper cost of seemingly everything from food to petrol,” said Myron Jobson, senior personal finance analyst at Interactive Investor.
The UK has been struggling with rising living costs, soaring inflation, surging fuel costs, and a worsening job crisis especially following the aftershocks of the Ukraine crisis.
The war in Ukraine and subsequent energy crisis as well as an economy still battered by the pandemic are among the main reasons for Britain’s economic woes.