THE UK economy is at risk of “sleepwalking into recession".

Writing in The Herald today, Edinburgh-based fund management veteran Colin McLean warns evidence is “mounting” that “activity is cooling in many areas of the economy”.

“The latest hike in interest rates by the Bank of England might be a step too far,” writes Mr McLean, a director of SVM Asset Management Holdings. “Finances are rapidly tightening; any businesses that are already struggling may now find borrowing very expensive if indeed loans are available at all.”

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However, Mr McLean says the UK is not the only country showing signs of malaise. “Data from around the world paints the same worrying picture,” he said. “Voluntary cuts in oil production point to softening global activity and demand for energy.

“These economic worries extend to China and the US, with recent signals suggesting deteriorating business and consumer confidence.

“Consumer credit demand is slowing rapidly and some key indicators such as used car prices are registering their biggest drop since the pandemic. 

“In Europe, the warning is in the construction indicators. Even the Bank of England expects inflation to drop “markedly” this year, something that may already have been on course before the latest rate rise.”

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Mr McLean suggests the UK has “limited options” for spending and borrowing, noting that “overall taxes are at a relatively high level”. And he highlighted the unwelcome effects of high interest rates. The Bank of England base rate now stands at 5% following a series of rises since December 2021 to combat inflation.

“High interest rates have even brought a strong pound, not helpful for exports or tourism,” Mr McLean writes. “Scotland would benefit currently from a weaker currency.

“Before the recent jump in interest rates, the UK economy was on track for a marginal level of growth this year. But higher rates are a hurdle for a lot of financing activity that drives the economy; property transactions, capital investment and refinancing.”