Mann says in order to combat this inflation, UK and Eurozone policymakers may have to push interest rates beyond neutral and into territory that would actually cause the economy to shrink.
As discussed above, Moëc's view is that policymakers will have to moderate their plans for interest rate rises in the face of weaker economic data, and this would negate the need for the US to increase rates to reduce economic demand, as demand would already be falling
Can't beat the feeling
Lyons says there is “validity” in Mann’s view, and he wants to see interest rates much higher globally, adding that there may well be a recession, but Lyons wants to combat the effect of higher interest rates with increased levels of government spending.
Zangana says that "dollar strength is the least of the UK’s problems", while Grace Le, a bond fund manager at Artemis, notes that as economic conditions continue to deteriorate, central banks will stop putting rates up.
Lyons was one of a number of economists recently consulted by the prime minister, and Lyons told him to increase spending in a way that is “targeted, timely and temporary”.
Moëc says that Brexit could mean inflation persists for longer in the UK than elsewhere, so the UK could lag the rest of the world in growth terms.
In contrast, returning to economic cycles, Lyons takes the view that because the UK opened up more quickly than the Eurozone, it may have been at a different stage of the economic cycle, and so the UK was the only country in the G7 tightening fiscal policy. But now the UK, like the rest of the G7, is loosening fiscal policy.
He adds: "I think the data we have seen lately indicates the UK economy may be in more resilient shape than the Eurozone.”
Zangana does not believe recession is the most likely scenario for the global economy in the year ahead, due to the excess of savings built up by households during the pandemic.
Robertson adds: “We may not have a recession, as defined by two consecutive quarters of negative GDP growth, but to be honest, what we could have instead of that will feel like a recession for a lot of people anyway. It could look pretty grim.”
