Poor terminal performance in local VS Code Dev Container

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I'm exploring remote container development in VS Code and GitHub Codespaces.

For context, I'm working in Windows 11 on performant Dell XPS 9310 i7 / 32 GB RAM machine.

When I open my Codespace / Dev Container in GitHub Codespaces via the browser, or in VS Code via the > Codespaces: Open in VS Code command, there are no performance issues.

Because I want to know whether development offline is feasible, I am testing having cloned my repo on my local machine, and having opened the repository folder in VS Code locally. This causes a local Docker container to be started in Docker Desktop running on WSL 2. (As expected, Git commands need to be managed outside of VS Code as expected due to permissions, but otherwise looks OK).

A performance issue is apparent when interacting with the terminal (bash or zsh). A terminal prompt takes literal minutes to appear, and to return after every command. I am often stuck waiting for a prompt as shown below after running simple commands requiring few resources.

Waiting for bash prompt

What is the cause of the poor performance here?

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