UK could be facing longest period of recession ‘in a century,’ Bank of England warns
The UK could be facing the longest period of recession since reliable records began, the Bank of England has warned, as it raised interest rates to 3%.
Homeowners are set to face the biggest single shock on their mortgage bills since the 1980s as the Bank of England hiked interest rates for the eighth time in a row.
The Bank’s base rate will rise to 3% from 2.25%, its highest for 14 years, and decision makers warned that more hikes are likely.
It will help pile around £3,000 per year on to mortgage bills for those households that are set to renew their mortgages, the Bank said.
The Bank also warned that the UK could be on course for the longest recession since reliable records began in the 1920s.
Gross domestic product (GDP) could shrink for every quarter for two years, with growth only coming back in the middle of 2024.
The economy has faced similarly long recessions in the past, but then the quarterly drops have been broken up with an occasional positive quarter.
However the Bank cautioned that this forecast is based on interest rates reaching as high as 5.2%, which the Bank said it does not necessarily expect to happen.
It could be a drawn-out recession, but will be less than half as severe as the 2008 financial crisis, the Bank said.
From its highest to lowest point, GDP is expected to drop 2.9%, the Bank said, compared with 6.3% during the financial crisis.
Meanwhile unemployment is expected to peak at around 6.5%, from 3.5% today, slightly lower than in 2008.
There was better news in the Bank’s inflation projection.
It had previously forecast inflation to peak at 13% in the third quarter of this year, but with the Government’s support on household energy bills the forecast was slashed to 10.9%.
The Government has said that the energy support – which currently caps bills at 34p per unit of electricity and 10.3p per unit of gas – will be reviewed next April, instead of running for two years as previously promised.
Assuming that some support will remain in place for the full two years – albeit half as generous from April next year – the Bank forecast that inflation would drop to 5.25% next year before dropping to 1.5% in 2024.
The latest decision pushes interest rates to their highest since early December 2008, and will heap extra pressures on households.
It is the biggest single increase to the UK base rate since 1989 when the measure was still decided by the government.
Decision makers also said that more hikes were likely to come, however they do not expect rates to rise as high as the 5.2% that the market has forecast for the final quarter of next year.
“The majority of the committee judges that, should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in the Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than prices into financial markets,” the Bank said on Thursday.
It also warned there are uncertainties and said that if inflation looks to be more persistent than the current outlook it will “respond forcefully”.
Further hikes
The Bank of England has said further interest rate hikes could be required to tame runaway inflation, as it implemented the biggest single increase since 1989.
All but two members of the Monetary Policy Committee (MPC) voted to push up interest rates by 0.75 percentage points, from 2.25% to 3%, during a crunch meeting on Thursday.
One member of the nine-person MPC voted for a 0.5 percentage point increase, while another wanted a much softer 0.25 percentage point rise.
But while further hikes could be necessary to pull inflation back to its 2% target, the peak rate will be lower than what financial markets currently expect, the Bank said.
‘Face up’
“The most important thing the British government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible.
“Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth.
“However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”
‘Sobering news’
Plaid Cymru’s Treasury spokesperson, Ben Lake MP responded to the “sobering” news that the Bank of England has raised interest rates by 0.75 percentage points – the single biggest increase since 1989.
The Ceredigion MP warned against implementing another round of austerity and instead to use the upcoming budget to “set out a sustainable package of support to help every household cope this winter.”
Ben Lake MP said: “Sobering news that the Bank of England has raised interest rates by 0.75 percentage points today – the single biggest increase since 1989.
“This will place further strain on households, and see mortgage rates rise yet again.
“The Chancellor should avoid the temptation of implementing another round of cuts to hard-pressed public services in response to this serious development.
“He should instead heed the Bank’s warning that the UK is already in recession, and use the upcoming budget to set out a sustainable package of support to help every household cope this winter.”
‘Turn away from austerity’
Rebecca Evans, the Welsh Government’s Finance Minister, said: “Today’s interest rate rise will make a difficult situation even tougher for many people and businesses who are already struggling to make ends meet.
“The Bank of England has warned we are facing a long and deep recession that risks jobs, businesses and public services. The Chancellor must use his autumn statement to turn away from austerity and instead invest in the UK and deliver a meaningful and targeted cost-of-living support package.”
More to follow…
Support our Nation today
For the price of a cup of coffee a month you can help us create an independent, not-for-profit, national news service for the people of Wales, by the people of Wales.
The UK is going through crisis after crisis. Over the last 12 years the Tories have worsened every one of them by their ideology and incompetence. I cannot see how the UK holds together even if Labour wins the next GE. Labour faces a choice. Either facilitate the passing of the UK and the birth of a new Britain or watch as the UK breaks apart in chaos.
Its deliberate!!!
At least Rees-Mogg was correct when he said, it could take 50 years for the benefits of Brexit to be felt. Now what was that about Cymru having an insurance policy? We must now all be seeing the futility of this union. Annibyniaeth mawr.
Annibyniaeth Nawr
Apparently “they knew what they voted for”.
Interest rates were a lot higher under Labour. Also, inflation is high all across Europe.
Weak attempt as a troll, how far back do you want to go,I would like it put on record, that I blame the Labour party for the plague( black death) of 1348 to 1665, all 40 outbreaks worldwide.