The Bank of England has issued a statement saying that they expect the UK to fall into the longest recession in 100 years. Bank Governor, Andrew Bailey warned of a ‘tough road ahead’ for UK households, but said they needed to act now or it ‘will be worse later on’, in a BBC report.
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The Bank of England has put up interest rates to 3%, which is the single biggest increase in 33 years. The 0.75% rise is the eighth increase in the last year as the UK tries to cope with double-digit inflation and challenging times ahead.
Mortgages
The increase will be painful for people with tracker or variable rate mortgages as the rise will have an immediate impact on their payments. It is estimated that 300,000 people will need to remortgage their homes this month, however they will be disappointed to find that two-year fixed rate mortgages haven’t dropped much below the 6% peak at the height of market turmoil, as per the Guardian.
The bank has anticipated that inflation will peak at 11% at the end of the year and then will probably fall ‘quite sharply’ in the middle of 2023. Considering the impact on mortgages, Bailey has said he hopes loan providers will respond by continuing to reduce the costs of their products to customers, reports the Guardian.
Unemployment and cost of living
Whilst a painful economic period lies ahead, it is not predicted to be the deepest recession on record. Unemployment is at its lowest in 50 years but it is expected to rise to nearly 6.5%.
Cost of living has been increasing mainly as a result of inflation and rising energy prices. The Bank hopes that by making borrowing more expensive, people will spend less and this will ease pressure on prices.
The Bank of England hopes the interest rate rise will tackle some of these problems, with chancellor Jeremy Hunt commenting, as per the Guardian:
Inflation is the enemy and is weighing heavily on families, pensioners and businesses across the country. That is why this government’s No 1 priority is to grip inflation, and today the Bank has taken action in line with their objective to return inflation to target.
Sources used:
- BBC 'Bank of England expects UK to fall into longest ever recession'
- The Guardian 'Bank of England warns of longest recession in 100 years as it raises rates to 3%'
