By Tony O’Reilly-
The Bank of England issued a set of gloomy warnings that the UK will fall into recession as it raised interest rates by the most in 27 years. The economy is forecast to shrink in the last three months of this year and keep shrinking until the end of 2023.
Inflation is now expected to peak at 13.3% in October, it’s highest for 22 years, and will still be close to 10% in a year’s time. Economic indicators suggests a contraction of the economy in the final three months of this year, which will not be revived until early 2024.
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Living standards are expected to fall by 5% over the next two years , taking modern Britain backwards by some four decades. The sudden rise in interest rates as seen as the necessary step to manage and regulate the spiralling inflation expected to depress brits for the next few years.
The decision for the monetary authorities to raise interest rates as a mechanism to address inflation is expected to increase borrowing costs and encourage saving.
Interest rates rose to 1.75% as the Bank battles to stem soaring prices, with inflation now set to hit over 13%.
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Bank governor Andrew Bailey said he knew the cost of living squeeze was difficult but that it was imperative he raised interest rates to prevent it from getting “even worse”.
The main reason for high inflation and low growth is soaring energy bills. driven by Russia’s invasion of Ukraine.
Forecasts for regular households is for most to be paying almost £300 a month for their energy by October.
The expected recession would be the longest downturn since 2008, when the UK banking system faced collapse, bringing lending to a halt.
The Bank’s governor Andrew Bailey said he had “huge sympathy and huge understanding for those who are struggling most” with the cost of living.
“I know that they will feel, ‘Well, why have you raised interest rates today, doesn’t that make it worse from that perspective in terms of consumption?’, I’m afraid my answer to that is, it doesn’t because I’m afraid the alternative is even worse in terms of persistent inflation.”
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