The Bank of England has warned the UK is facing its longest recession since records began, as it raised interest rates by the most in 33 years. It warned the UK would face a “very challenging” two-year slump with unemployment nearly doubling by 2025.
Bank boss Andrew Bailey warned of a “tough road ahead” for UK households, but said it had to act forcefully now or things “will be worse later on”. It lifted interest rates to 3% from 2.25%, the biggest jump since 1989.
By raising rates, the Bank is trying to bring down soaring prices as the cost of living rises at its fastest rate in 40 years. Food and energy prices have jumped, in part because of the Ukraine war, which has left many households facing hardship and started to drag on the economy.
A recession is defined as when a country’s economy shrinks for two three-month periods – or quarters – in a row. Typically, companies make less money, pay falls and unemployment rises. This means the government receives less money in tax to use on public services such as health and education.
The Bank had previously expected the UK to fall into recession at the end of this year and said it would last for all next year. But it now believes the economy already entered a “challenging” downturn this summer, which will continue next year and into the first half of 2024 – a possible general election year.
While it will not be the UK’s deepest downturn, it will be the longest since records began in the 1920s, the Bank said. The unemployment rate is currently at its lowest for 50 years, but it is expected to rise to nearly 6.5%.
The interest rate announcement is the first since former Prime Minister Liz Truss and former Chancellor Kwasi Kwarteng unveiled their controversial mini-Budget in September.
Their plans for £45bn worth of unfunded tax cuts – much of which have been reversed – sent the value of the pound tumbling and sparked market turmoil, forcing the Bank of England to step in to restore calm. Mr. Bailey told the BBC he believed that the mini-budget had “damaged” the UK’s standing internationally. (SOURCE)
