Recession risks spark UK market jitters ahead of BoE decision

Recession risks spark UK market jitters ahead of BoE decision

Bloomberg / London

UK markets are sounding the alarm over a potential recession, piling pressure on the Bank of England to balance curbing surging inflation with protecting growth.

An index of discretionary retail stocks has tumbled 26% this year as consumer confidence slumps to the lowest since 2008, while nearly 2,000 businesses are in critical financial distress. The pound is trading at levels not seen since the early days of the pandemic, and money markets bet central bankers will have to cut rates in coming years after sharp hikes in 2022.

It’s a “pretty ugly backdrop” to set the scene for the BoE’s meeting next week, according to BlueBay Asset Management’s Mark Dowding. Policy makers will have to take in a rash of bad news, with retail sales weaker than anticipated and inflation at a three-decade high.

The central bank is widely expected to lift interest rates again Thursday and money markets expect more hikes at each meeting this year, piling further pain on borrowers. BoE Governor Andrew Bailey has already noted the difficult path bankers need to tread to avoid potentially triggering a recession.

“The market is definitely of the view that the UK is more vulnerable here,” said James Lindley,