The Bank of England has warned the UK will fall into recession as it raised interest rates by the most in 27 years. The economy is forecast to shrink in the last three months of this year and keep shrinking until the end of 2023,The BBC reports.
Interest rates rose to 1.75% as the Bank battles to stem soaring prices, with inflation now set to hit over 13%. Governor Andrew Bailey said he knew the cost of living squeeze was difficult but if it didn’t raise interest rates it would get “even worse”.
The main reason for high inflation and low growth is soaring energy bills, driven by Russia’s invasion of Ukraine.
A typical household will be paying almost £300 a month for their energy by October, the Bank warned. The expected recession would be the longest downturn since 2008, when the UK banking system faced collapse, bringing lending to a halt.
The slump is not set to be as deep as 14 years ago but may last just as long.
The Bank’s governor Andrew Bailey said he had “huge sympathy and huge understanding for those who are struggling most” with the cost of living.
“I know that they will feel, ‘Well, why have you raised interest rates today, doesn’t that make it worse from that perspective in terms of consumption?’, I’m afraid my answer to that is, it doesn’t because I’m afraid the alternative is even worse in terms of persistent inflation.”
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