Countries in the European Union (EU), which may experience inflation that spikes above 10% in the third quarter, also have a higher risk of recession than the U.S. because of their monetary policy challenges but also because of their dependence on Russian natural gas, Vanguard said.
“A complete cutoff from Russian gas would likely lead to rationing and recession. We assess the probability of recession around 50% over 12 months and 60% over 24 months, Vanguard said.
Energy prices will likely drive the inflation rate to roughly 10% in the U.K. late in the year, the firm added. Inflation is rising and the economy is slowing, so despite the UK’s strong labor market, near 50-year low unemployment, the drop in real wages, along with diminished consumer and business confidence and tightened lending, could push the U.K. into a recession.
“For 2022, we’ve downgraded our 5.5% forecast at the start of the year to 3.5%–4%. Further out, the pending leadership change in the U.K. may bring some policy uncertainty,” the firm said.