The UK could be facing the longest period of recession since reliable records began, the Bank of England has warned, as interest rates have been hiked again. 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.
The economy could fall into eight consecutive quarters of negative growth if current market expectations prove correct. It would be the longest period of uninterrupted decline that the nation has experienced for around a century.
However, it would be a milder recession than in previous times.
From its highest to lowest point, gross domestic product (GDP) is expected to drop 2.9%, a much smaller decrease than the 6.3% drop seen during the 2008 financial crisis.
The Bank also predicted inflation would peak at around 11% at the end of this year, while the unemployment rate could hit 6.4% by the end of 2025.
The UK could be facing the longest period of recession since reliable records began, the Bank of England has warned.
The economy could fall into eight consecutive quarters of negative growth if current market expectations prove correct. It would be the longest period of uninterrupted decline that the nation has experienced for around a century.
However, it would be a milder recession than in previous times.
From its highest to lowest point, gross domestic product (GDP) is expected to drop 2.9%, a much smaller decrease than the 6.3% drop seen during the 2008 financial crisis.
The Bank also predicted inflation would peak at around 11% at the end of this year, while the unemployment rate could hit 6.4% by the end of 2025. Jeremy Hunt has faced calls to come to the Commons or give a press conference to explain how mortgage-holders will be helped following the expected hike in interest rates.
Liberal Democrat Treasury spokeswoman Sarah Olney said: “The Chancellor must address the country immediately after the rate rise decision to spell out a plan to save homeowners on the brink.
“He should either come to Parliament or hold a press conference to announce support for families facing mortgage bill rises worth hundreds of pounds a month.
“Hard-working families are being left to pay the price for weeks of Conservative chaos. People are desperately worried about how they are going to pay these frightening mortgage payments after tomorrow.
“The Government cannot hide away, especially after their long list of economic failures.”
Rightmove’s property expert Tim Bannister said: “The era of historically low interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.
“However, compared to the volatility of a few weeks ago, mortgage rates have now started to stabilise and fall. As today’s rise was expected, we don’t think we’ll see any significant changes to new fixed rate deals based solely on today’s interest rate rise.
“Mortgage payments will be much more manageable for those first-time buyers who have been lucky enough to save up a bigger deposit of 25%, as they may find that monthly mortgage payments on a typical first-time buyer home are lower than their current monthly rental payments.
"It’s important to look beyond the headline numbers, because, while “like-for-like” mortgage costs have been increasing, mortgage brokers and lenders will be able to help people assess the different options available to manage their costs and see if they can afford to move.”
Richard Lane, Director of External Affairs at StepChange Debt Charity, said: “Rising rates are the price being paid for high inflation – and both create trouble for people experiencing problem debt. The cost of living is hitting everyone, but is especially hard for households on lower and fixed incomes, while rising rates have a dramatic effect on those mortgage holders rolling off fixed rates who have had little time to plan for much higher costs.
“Current conditions prove the point that debt can affect anyone, and there is no cause for shame or embarrassment about it. We urge anyone feeling the strain to take action by contacting their creditors and a reputable debt advice organisation, who may be able to help in ways you don’t expect. For example, StepChange even has a dedicated mortgage debt advice team – no-one should feel that their situation puts them outside the realm of getting help, and it’s always better to take action on debt problems sooner rather than later.”
The pound fell after the Bank of England’s aggressive rate rise and warnings over a prolonged recession lasting two years.
Sterling dropped 1.4% to 1.123 against the US dollar and was 0.8% lower at 1.15 euros.
