The Bank of England has today warned that the UK is facing its longest recession since the 1920s. It has also raised interest rates to 3% from 2.25%, its highest for 14 years.
A recession is defined as when a country's economy shrinks for two three-month periods in a row. The growth of the economy is measured by the country's Gross Domestic Product (GDP), which is the value of the goods and services produced.
If things are going well, the value of goods is going up, so for example UK farmers are making profits from their cattle and crops, and that's happening across all sectors, GDP rises, and the economy is, generally, in good shape. In a recession, the value for things produced in the UK goes down, and the economy shrinks.
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But how does that impact you? Typically in a recession, companies make less money, wages go down, and unemployment goes up. That leads to less money going to the government from income tax, so less money to use on public services such as health and education.
The UK is in a period of economic turmoil, with inflation is currently at 10.1 per cent, which is the highest rate seen in the UK for 40 years. The raised interest rates on top of other price surges, such as food and energy bills, could cripple some households as it means mortgage payments could go up.
From its highest to lowest point, GDP is expected to drop 2.9%, the Bank said, compared with 6.3% during the financial crisis in 2008. The Bank of England currently predicts that the UK will face a "very challenging" two-year slump with unemployment nearly doubling by 2025. The last recession the UK faced was in 2020 during the height of the Covid-19 pandemic.
Chancellor Jeremy Hunt said the Government would focus on tackling the UK’s battered public finances to help limit the need for further big rate rises but admitted there are “no easy options”.
He said: “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. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”
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