Aggressive interest rate hikes in the UK and the US have caused economic recession in both countries

According to forecasts by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD), the UK economy has shown signs of slowing down and will become the weakest major developed country in the world next year. The escalating row over Northern Ireland's status could lead to higher trade barriers between the UK and the EU. In addition to the weakening UK economy, EU-UK tensions over Britain's push to unilaterally rewrite the Northern Ireland Agreement and Sturgeon's push for a Scottish independence referendum next year are weighing on sterling's sentiment.

​​

After the Bank of England raised interest rates, the market updated its forecast, expecting the Bank of England to raise interest rates by 50 basis points each in August and September. However, market expectations are also in a state of just balance. If inflation and the labor market cool more than we expect, the MPC may choose to continue the "slow down", with rates expected to peak at 2.5% from the current 1.25% by November, before a rate-cutting cycle begins in mid-2023 , and expects to cut rates by 100 basis points over the next year.

​​

Nearly one-third of British people are more frustrated and angry with the rising cost of living than they were six months ago, according to a Sky News poll. Polls highlight that the rising cost of living has seriously affected people's mental health. British Prime Minister's Spokesperson: Major decisions will be submitted to Deputy Prime Minister and Justice Secretary Raab within 24 hours. No final decision has been made on steel tariffs. Linking wage increases to inflation has long-term consequences.

Britain wants a pay rise for the public sector.

​​

A British investment bank report shows that aggressive interest rate hikes by the Federal Reserve and the Bank of England have made economic recession in both countries almost certain. The good news, however, is that while a recession could come as early as the end of the year, it's likely to be a cyclical slowdown that lasts about six months, meaning that while investors need to focus more and more on defensive stocks right now, The end of the recession and another bull run will come in 2023.

​​

Last week, many central banks raised interest rates by the most in decades, including the Federal Reserve raising interest rates by 75 basis points last Wednesday, the largest since 1994, and the Swiss National Bank unexpectedly decided to raise interest rates by 50 basis points. Affected by this, the foreign exchange market fluctuated greatly. Investors are betting that the SNB won't stop the franc's rise as it has done in the past.

​​

Before inflationary pressures start to ease, the labor market is likely to weaken first, and consumer demand is substantially weaker. It is expected that the overall CPI will average around 9% year-on-year for the rest of the year, while the core CPI may remain above 6% year-on-year. According to the latest survey of fund managers, nearly half of respondents said the Fed would “turn” if inflation fell below 4 percent. HSBC pessimistically predicts that core inflation will remain high for at least the rest of this year, and may start to fall back next year. And before inflation falls, the labor market will weaken first.

​​

The S&P 500 is now implying an 85% probability of a U.S. recession, and the market is worried about a policy error by the Federal Reserve. The warning from JPMorgan quants and derivatives strategists is based on the average 26% decline in the S&P 500 during the past 11 recessions. And the index has only recently slipped into a bear market as investors worry about soaring inflation and aggressive rate hikes by the Federal Reserve.