The Bank of England has warned that the UK will enter a recession after raising interest rates to their highest level in 27 years. The economy is expected to contract in the final three months of this year and continue to contract through the end of 2023.
Interest rates rose to 1.75 percent as the Bank battled rising costs, with inflation now expected to exceed 13 percent. Governor Andrew Bailey acknowledged that the cost-of-living pinch was difficult, but that if interest rates were not raised, it would become "much worse."
Soaring energy expenses, caused by Russia's invasion of Ukraine, are the primary cause of high inflation and low GDP. The average household will be spending about £300 per month for energy by October, according to the Bank.The predicted recession would be the longest since 2008, when the UK banking system neared collapse, effectively halting lending.
The decline will not be as severe as it was 14 years ago, but it may endure just as long. Andrew Bailey, governor of the Bank of England, stated that he has "great sympathy and huge understanding for those who are struggling the most" with the expense of living.
"I know they'll ask, 'Well, why have you raised interest rates today? Doesn't that make things worse in terms of consumption?' I'm afraid my answer is, no, it doesn't because I'm worried the alternative is far worse," he added.