You know the UK is in trouble when the Organization for Economic Cooperation and Development (OECD) singled out the UK economy with gloom and doom forecasts.

"This 'excessively loose fiscal policy' left little, if any, room to cut taxes and save the economy from a deep decline," said the OECD (according to Telegraph), which also forecast a 10% decline in home values, rising unemployment, and for another 200,000 people to lose their jobs over the next 18 months.

But who didn't see this coming?

It was March 29, 2008 when we called for the downfall of the British pound, as a severe credit crunch, a crippled housing market, and a cutback in consumer spending fueled economic mishap.

Even George Soros is now reportedly short the pound again.

Below, I'll share two ways to profit off the UK Recession. First, the backdrop...

UK Recession: Housing Tumbles, Debt Spirals

We knew that just as the U.S. has struggled for some control over sub-prime, Britain had to get aggressive or risk a stressful economic future. In the UK, more than 90% of all mortgages are adjustable-rate or floating-rate mortgages. More than 1.5 million homeowners are considered sub-prime, and another four million are seen as high risk because of imperfect credit histories.

On top of mortgage debt, British consumers owed $2.8 trillion on credit cards, hold 2.8 credit or debit cards, and have a household debt-to-income ratio of 1.62, as compared to 1.42 in the U.S.

Home prices are tumbling, having just fallen another 2.4% in May. Foreclosures have reached their highest levels since 1999. More than a million homeowners have ARMs that are expected to reset higher in the next twelve months. And consumer confidence has plunged to new lows.

It was also March 2008 when UK mortgage lender Nationwide said it would turn away business to get more control over the "amount it lends."

In an attempt to become less competitive, Nationwide was increasing the "rates on its tracker deals by more than half a percentage point," said the Times. "This will come as an added blow to homeowners already facing large increases in their monthly mortgage repayments."

That means 1.4 homeowners will likely be saddled with higher rates at the end of current fixed-term deals. It's a move that could easily be mirrored by other banks, making the repayment burden much worse.

Again, who didn't see this coming?

A year ago, no one thought it would come to this. Northern Rock and Bradford & Bingley were sailing along nicely, packing mortgages. The Treasury and the Bank of England had no reason to be concerned. Consumers were happy. The economy was growing well, and the Bank was raising rates to slow things down.

But behind the scenes the availability of cheap debt was coming back to haunt the UK.

These days, the Bank of England is reporting that mortgage applications have fallen about 50% over the last year to levels not seen since the early 1990s. Manufacturing numbers are on the verge on recession. The construction sector is free-falling and services, which account for three quarters of economic output, fell into recession territory.

Even the Halifax house price index recently fell more than 6%. And house price declines like this only happen when the economy is in recession and unemployment is rising. But that's not the case... yet. The other reason for house price declines is when there's a loss of monetary policy control. And that's happening as a result of the credit crunch, which has lessened the availability of credit.

In the doom and gloom of the UK economy, is it a shock that two-thirds of consumers believe the UK is already in a recession?

Fortunately, while it may feel like a recession, technically the UK economy is still growing.

We could go on, but think you get the point. The UK is, unfortunately, in trouble. But things will eventually turn around.

In the meantime, with the UK another victim of credit woes, there are two ways to profit.

2 Investments To Pop on the UK Recession

• 1. Continue shorting the pound by buying put options on the CurrencyShares British Pound Sterling Trust (FXB). Or...
• 2. Buy put options on the iShares MSCI United Kingdom Index (EWU) for further downside potential.

Good Investing,

Ian L. Cooper
http://www.wealthdaily.com