“This stagflationary scenario of high inflation and low growth would not be good for nominal government bonds, although inflation linked bonds could perform well.”
Laith Khalaf, head of investment analysis at AJ Bell, agreed. He said: “A recession would in theory be positive for the government bond market, but much will depend on how inflation and the labour market are behaving.
“Recessionary conditions should pour cold water on domestic inflationary conditions, but as we know the UK’s inflation picture is susceptible to exogenous shocks, especially around energy prices.
“Sticky or fresh inflation could prompt the central bank to keep interest rates high even in the face of recession, which would be negative for the gilt market.”
Imogen Tew is a freelance financial journalist
