The Bank of England has told Brits to prepare for the longest recession in modern history as it voted to hike interest rates by 0.75 per cent.
Households face a double whammy of soaring interest rates and sky-high inflation, with the situation unlikely to ease up in the next few years.
In its report, the Monetary Policy Committee (MPC) said the UK economy faces “a very challenging outlook.”
GDP is forecast to fall 0.75 per cent in the second half of 2022 and continue in recession through 2023 and the first half of 2024 before an upturn begins.
Inflation, meanwhile, is expected to peak at 11 per cent and unemployment at 6.5 per cent.
Discussing the decision to hike interest rates – which could help pile around £3,000 per year onto some mortgage bills – Bank of England governor Andrew Bailey said:
“We do understand the difficulties of the situation we’re in and the difficulties mortgage-holders face. If we don’t take action to get inflation down, things will get worse.”
This means that fixed-rate mortgages “should not need to rise as much as they have done”, according to the central bank boss.
Chancellor Jeremy Hunt commented: “Inflation is the enemy and is weighing heavily on families, pensioners and businesses across the country. That is why this government’s number one priority is to grip inflation, and today the Bank has taken action in line with their objective to return inflation to target.
“Interest rates are rising across the world as countries manage rising prices largely driven by the Covid-19 pandemic and Putin’s invasion of Ukraine.
“The most important thing the British government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible.
“Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”
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