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03rd Nov 2022

UK headed for longest recession in century, says Bank of England

Steve Hopkins

The prospect of a long recession is ‘a badge of shame’ for Rishi Sunak and the Tory government

The UK could be facing the longest period of recession since reliable records began a century ago, the Bank of England has warned as the cost of living crisis continues to worsen.

If current market expectations prove correct, the economy could fall into eight consecutive quarters of negative growth, with improvements not expected until the middle of 2024, The Independent reported.

Despite the gloomy outlook, the recession is expected to be milder than in previous times. From its highest to lowest point, GDP is expected to drop 2.9 per cent. During the 2008 financial crisis it fell 6.3 per cent.

The Bank of England has announced it is hiking its base interest rate by the largest amount in 33 years as it tries to get a grip on soaring inflation, and its boss, Andrew Bailey, warned it was a “tough road ahead” for Britain’s economy and struggling households.

Property owners set to renew their mortgages could have £3,000 a year added to their bills.

The Monetary Policy Committee (MPC) raised the base rate by 0.75 per cent to 3 per cent after warning last month that growing inflationary pressures will require a “stronger response” than previously thought.

Bailey said: “We do understand the difficulties of the situation we’re in and the difficulties mortgage-holders face.

“If we don’t take action to get inflation down, things will get worse.”

This means that fixed rate mortgages “should not need to rise as much as they have done”, the central bank governor explained.

Unemployment is expected to peak at around 6.5 per cent, from 3.5 per cent on Thursday, slightly lower than during the 2008 recession.

There was better news in the Bank’s inflation projection. The Bank forecast that inflation would drop to 5.25 per cent next year before dropping to 1.5 per cent in 2024.

Chancellor Jeremy Hunt said inflation is “the enemy” and the Bank had taken action to tackle it. The Chancellor blamed covid and Russia’s invasion of Ukraine.

Former PM Liz Truss‘s mini-budget, that was reversed in days, was not mentioned.

Hunt said the most important thing right now was to “restore stability”.

Lib Democrat leader Sir Ed Davey said the prospect of the longest recession on record was “a badge of shame” for Rishi Sunak and the Tory government.

The Liberal Democrats’ Treasury spokesperson Sarah Olney said Hunt must set out a plan to “save homeowners” after the rate rise.

“The blame for today’s rate rise lies squarely with the government,” she said.

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