Lie Back and Think of...

If American markets are undergoing a gut check, across the pond stiff upper lips may be quivering as well. Britain's tiring economy has made its weariness known in the stock market. The iShares MSCI United Kingdom Fund has lost more than a quarter of its value since an October peak on woes that look strikingly similar to those in the United States: Inflation caused in part by record energy costs is hampering the Bank of England's ability to cut interest rates (though the slowing economy will very likely help the BOE set that bias by the wayside). At the same time, mortgage and credit woes exported from America are dogging the Royal Bank of Scotland, while UK lender Northern Rock—the poster child for the spread of subprime problems and the scene of bank runs this fall—continues its slump toward nationalization. Meanwhile, Citigroup notes the pound has lost 9 percent over the past six months and sits at a record low versus the euro. Its analysts say this year "is likely to be grim, with soft spending, disappointing profits, rising business failures and unemployment, falling property prices, and worsening asset quality. Most of the bad news still lies ahead." Cool, Britannia.