The Bank of England (BOE) predicts that the UK will enter a recession this year, but it will be shorter and less severe than anticipated. As energy costs fall and price increases slow, the slump is now expected to last just over a year rather than almost two. BOE warned that although fewer people are likely to lose their jobs, the economy remains fragile.
The prediction comes as interest rates were increased to 4% from 3.5 percent, the highest level in more than 14 years. To combat the rising cost of living, the Bank has been raising interest rates. The rate at which prices rise, or inflation, is still close to its 40-year high, which is more than five times higher than it should be.
Andrew Bailey, governor of the BOE, said that although inflation now appears to be falling, there are still big risks out there that could continue to affect the economy. The Bank of England suggested that interest rates may be approaching their maximum, indicating that it will only raise rates further if it observes indications that inflation will continue to rise.
However, it is anticipated that the nation will not return to levels prior to COVID until 2026, which Andrew Bailey described as extraordinary. Andrew Bailey claims that COVID-19 has had more long-term effects than we anticipated, particularly in terms of the labor supply and individuals choosing not to participate in the labor force.
In order to prevent prices from rising as quickly, higher interest rates are intended to encourage people to save more and spend less. The tenth increase in borrowing costs on Thursday will put even more pressure on many households already struggling to keep up with the cost of living. A typical tracker mortgage owner will now pay approximately 49 pounds more per month. There will be a 31-pound increase for those with standard variable rate mortgages.
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