It's as much the perception of defeat as the reality. If the populace believe the war is lost then they will be
far more resistant than historically to make sacrifices to continue what appears to be a futile and worthless fight. This would be reinforced if the existence of armistice negotiations was made public; no-one wants to be the last to die.
Further the
perception of defeat, and hence weakness, makes potential allies (such as the Dominions and the US) reluctant to assist; what is the point in supporting a lost cause? It also emboldens potential enemies; if the UK, and it's Empire, are perceived as weak then everyone with a grievance or territorial dispute (and there are a lot of them) will be eying up the possible gains. Likewise every suppressed nationalist group within the empire will be considering the options.
As the master said:
Uberwald is like this big suet pudding that everyone's suddenly noticed, and now with this coronation as an excuse we've all got to rush there with knife, fork and spoon to shovel as much on our plates as possible
And the British Empire is looking like the next meal...