Recessions look likely – on differing timescales – in the US, euro area and the UK as monetary policy continues to tighten, on high energy prices and as households struggle with cost-of-living pressures.
Fiscal policy will help ease the pain, but not enough to prevent a downturn. With domestically driven inflation indicators having picked up in Europe, the European Central Bank (ECB) and Bank of England (BoE) now look more likely to follow the US Federal Reserve (Fed) in getting rates more rapidly to restrictive territory. Weaker domestic demand and global inflationary pressure will take the pressure off central banks, but that looks set to be more of a 2023 story.
The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.