Britain could face the longest period of recession since credible records began a century ago, the Bank of England has warned.
If current market expectations hold true, the economy could fall into negative growth for eight consecutive quarters – with growth only returning to mid-2024.
However, it is expected to be slightly bearish as compared to last time. From its highest to lowest point, GDP is expected to decline by 2.9 percent – a small decrease compared to the 6.3 percent drop seen in the 2008 financial crisis.
Bank of England Governor Andrew Bailey warned it was a “tough road ahead” for the UK economy and families struggling during a cost of living crisis.
The bank announced that it is raising its base interest rate by the biggest amount in 33 years as it tries to catch up on rising inflation.
The Monetary Policy Committee (MPC) last month raised the base rate by 0.75 per cent to 3 per cent after warning that rising inflationary pressures would require a “stronger response” than ever before.
The bank said it could help it pile up £3,000 a year on mortgage bills for families who are ready to renew their mortgages.
Justifying the substantial rate hike, Mr. Bailey said: “We understand the difficulties of the situation we are in and the difficulties we face. The situation will only get worse if we do not take steps to reduce inflation. .
This means that fixed rate mortgages “should not need to increase that much”, according to the central bank’s boss.
Meanwhile, during the protracted recession, unemployment is expected to hover around 6.5 percent from today’s 3.5 percent, slightly lower than in 2008.
Better news came in the bank’s inflation forecast. The bank estimates that inflation will come down to 5.25 per cent next year and to 1.5 per cent in 2024.
Chancellor Jeremy Hunt said inflation is the “enemy” and the bank has taken action to combat it. But he said inflation was “largely driven” by Covid and Russia’s invasion of Ukraine – avoiding any mention of Liz Truss’s disastrous mini-budget.
“The most important thing the British government can do right now is to restore stability, settle our public finances, and slash debt so that interest rate hikes can be kept as low as possible,” Mr Hunt said.
Lib Democrat leader Sir Ed Davey said the prospect of the longest recession on record was a “shame” for Rishi Sunak and this Conservative government.
Sir Keir Starmer reacted live to the interest rate hike, saying there was a “Tory premium on mortgages” and that families would “shudder” over what the interest rate hike meant for their finances.
“We are more exposed in this country, we are paying more [for inflation] In this country, because of failure in the last 12 years,” he told Times Radio. “This, I fear, lies at the door of Downing Street.”
TUC chief of economics Kate Bell said activists were “paying a high price for the conservatives who crashed the economy” – adding that “it was time for a general election to replace the party causing this crisis”.
Treasury spokeswoman Sarah Olney for the Liberal Democrats said Mr Hunt should plan to “save homeowners” after the rate hike. “The blame for today’s rate hike lies entirely with the government,” she said.
CBI chief economist Alpesh Paleja said the bank has been forced to implement a “bumper” rate hike, underscoring the scale of Britain’s inflation challenge.
Credit: www.independent.co.uk /