The Bank of England has warned that the UK could be facing the longest period of recession since reliable records began after interest rates were hiked to three per cent.
Today, rates increased for the eighth time in a row - to the highest they have been for 14 years. The Bank’s base rate is rising from 2.25 per cent by 0.75 per cent, with people being warned that more hikes in the future are likely.
It is the biggest single increase to the UK base rate since 1989 when the measure was still decided by the government.
READ MORE: Bank of England hikes interest rates to 3 percent - here is what it means for your mortgage
If current market expectations prove correct, the economy could fall into eight consecutive quarters of negative growth. 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 per cent, a much smaller decrease than the 6.3 per cent drop seen during the 2008 financial crisis.
The Bank also predicted inflation would peak at around 11 per cent at the end of this year, while the unemployment rate could hit 6.4 per cent by the end of 2025.
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 warned there were “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.”
Shadow chancellor Rachel Reeves said PM Rishi Sunak needed to “face up to his mistakes” that have led to the “vicious cycle of stagnation”. The Labour MP said: “Families now face higher mortgages and more anxiety after months of economic chaos. Today’s recession warning lays bare how 12 years of Tory government has weakened the foundations of our economy, and left us exposed to shocks, lurching from crisis to crisis with falling living standards and low growth."
TUC head of economics Kate Bell warned of a “bleak recession” to come, saying that workers would pay "a high price for the Conservatives crashing the economy". She said: "It will hammer businesses and people paying a mortgage. We need a new economic plan with growing wages and strong public services at its heart. And we need a general election now, to replace the party that created this crisis.”
The pound fell after the Bank of England’s warnings over a prolonged recession. Sterling dropped 1.6 per fcent to 1.122 against the US dollar and was 0.7 per cent lower at 1.15 euros.
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