UK Heading for Long Recession Says Bank of England Amid Warnings of 15 Per Cent Inflation

LONDON, ENGLAND - NOVEMBER 04: A general view of the Bank of England on November 04, 2021 in London, England. The Bank announced today that the Monetary Policy Committee voted to leave the bank rate at the historic low of 0.1%. (Photo by Leon Neal/Getty Images)
Leon Neal/Getty Images

The Bank of England has warned that the British economy is heading into a protracted recession as it raised interest rates to fight inflation amid fears of 13 or 15 per cent inflation by the end of year.

The Bank of England raised interest rates to 1.75 per cent on Thursday, the highest level since the 2008 financial crisis. The central bank raised the rates in the hopes of mitigating the expected increases to inflation, which it now forecasts as hitting 13.3 per cent this year, a four decade high.

It is now expected that at the end of the year, the British economy will sink into a recession that will last for at least five quarters, with the definition of a recession being two straight quarters of negative growth.

Not only will the recession leave the economy smaller than prior to the Chinese coronavirus crisis, the Bank warned, with 900,000 fewer people employed by 2025, the economic crisis is expected to have a drastic impact on wages.

According to projections, real household incomes are expected to decline by the most since records began in 1963, falling by 1.5 per cent this year and 2.25 per cent in 2023.

Announcing the interest rate hike, Bank of England Governor Andrew Bailey said: “I recognise the significant impact this will have and how difficult the cost of living challenge will continue to be for households. Inflation hits the least well-off the hardest.

“If we don’t bring inflation rate to target, it’s going to get worse.”

Nevertheless, the central bank said that it did not expect inflation to return to the two per cent goal until 2025.

Commenting on the Bank’s performance, Brexit leader Nigel Farage said: “The Bank of England has totally failed us. They didn’t see high inflation coming. Then they told us it was ‘transitory’. Now they say it is here to stay for years and will hit 13%.

“They are so bad they make politicians look good!”

While the Bank of England predicted that inflation will hit 13.3 per cent, others, including Resolution Foundation have warned that it will climb higher, with the think tank claiming that it could hit 15 per cent by early next year.

Inflation began in earnest last summer after lockdowns began lifting, however, the continued inflation is mostly due to the spiralling energy crisis. Analysts are now warning that energy bills could rise in Britain to £4,200 in January after another increase to the energy cap, a socialist system in the UK supposedly intended on keeping energy prices low for middle and lower-class families.

A senior economic analyst at the Resolution Foundation, Jack Leslie said: “The outlook for inflation is highly uncertain, largely driven by unpredictable gas prices, but changes over recent months suggest that the Bank of England is likely to forecast a higher and later peak for inflation — potentially up to 15 per cent in early 2023.”

Follow Kurt Zindulka on Twitter here @KurtZindulka

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