The outlook for the UK economy is pretty bleak.
The Bank of England raised interest rates again on Thursday and warned that Britain is headed for its longest recession since the Great Depression of the 1930s.
Here are five things we learned from the central bank about the future of the economy.
- Britain is Set For a Two-year Recession
Britain is facing its longest recession on record, with the Bank of England warning that the country faces two years of “very difficult” recession.
When a country is in recession, it is a sign that its economy is doing badly. A recession occurs when a country’s economy shrinks for two to three consecutive months.
This has been predicted for some time due to rising prices of goods such as food, fuel and energy in the UK, with shortages due to a number of factors including the war in Ukraine.
Earlier, the Bank had expected the UK to fall into recession later this year and said it would last until next year.
But he now believes the economy has already entered recession this summer, and predicts it will continue into next year and into the first half of 2024.
- Unemployment Rate Nearly Doubled
Generally, when a country is in recession, companies make less money and the number of unemployed people increases.
Graduates and school leavers also find it difficult to get their first job.
The bank has predicted that the UK unemployment rate will rise significantly over the next two years to 6.4%.
Currently, the unemployment rate is at 3.5 percent, its lowest level since 1974, thanks to job growth as the economy begins to recover from the pandemic.
But experts were already warning that the tide could be starting to turn as the number of job vacancies fell in recent months.
- Some Mortgages Can Go Up To £3,000 a Year
Many homeowners will likely face higher mortgage payments over the next two years, the bank said.
Mortgage rates are rising and those on fixed-rate deals, which make up about 80% of mortgages, will face increased payments when their fix ends.
According to the bank, the annual payout can rise to £3,000 in some cases.
But with the central bank’s latest interest rate hike widely expected, many lenders have “priced in” the rise by raising their mortgage rates in advance.
According to Simon Gaiman, managing partner at mortgage advisers Knight Frank Finance, most lenders are offering fixed rates between 5.5% and 6%, so he says further increases would be surprising.
Those on tracker or variable rate mortgages will see their monthly payments rise with any future rate rises from the Bank of England.
- Inflation Will Decrease Next Year
The inflation rate is a measure of the increase in value of something over time.
For example, if a loaf of bread costs £1 and it goes up to £1.05 a year later, bread inflation is 5%.
Inflation hit 10.1 percent in September, expected to hit 11 percent this winter before falling next year.
The bank’s target is to keep inflation at 2 percent.
- Interest Rates Will Not Rise As Much As Previously Expected
The Bank of England raises interest rates to try to control inflation. The idea is that people will be discouraged from borrowing and in turn will have less money to spend, causing prices to slowly rise.
With inflation expected to moderate next year, the bank does not expect interest rates to rise as much as forecast.
The November interest rate hike takes the current rate to 3%.
Further increases are due – so borrowing on credit cards, loans and mortgages will still be more expensive – but they won’t reach the 5.25% that financial markets had predicted.
Analysts believe they could reach around 4.75 percent next year.
