Warning of recession from BoE following another interest rate hike -
Bank of England

Warning of recession from BoE following another interest rate hike

Late last week, the Bank of England hiked interest rates again, with a super-sized 0.5% rate hike. Many people had expected a more significant rate increase following a series of smaller 0.25% hikes since December 2021. The latest rise means the base rate in the UK is now 1.75%.

The rate hike is the biggest in the UK for more than a quarter of a century. Bank of England officials have made it clear in recent weeks that they will take more aggressive action concerning monetary policy tightening. This comes as a result of soaring inflation, which has been fuelled by supply and demand issues and the Russian war against Ukraine.

In a statement, the central bank said: “The main way we can bring inflation down is to increase interest rates. Higher interest rates make it more expensive for people to borrow money and encourage them to save. That means that, overall, they will tend to spend less. If people on the whole spend less on goods and services, prices will tend to rise more slowly. That lowers the rate of inflation.”

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economic output

A recession is looming

In addition to hiking the base rate, the central bank has warned that the UK is on the brink of recession. According to Bank officials, the economy will start shrinking in the final three months of 2022, and the contraction will continue throughout 2023.

If the central bank’s predictions are correct, this will result in the deepest recession since the global credit crunch in 2008. It could result in serious economic struggles, job losses, business closures, and a sharp drop in the nation’s economic output.

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The bad news did not end there, as the Bank of England also revealed it had revised its peak inflation forecast, which previously stood at 9.4%. Instead, the central bank now predicts that inflation will hit a staggering 13% by the end of 2022 as living costs continue to rocket and higher energy bills come into play from October onward.

One investment analyst, Laith Khalaf, said, “Winter is coming, and it’s shaping up to be an absolute horror show for the UK economy. Make no mistake, 0.5% is a historic interest rate rise, but it is overshadowed by the abysmal economic forecasts produced by the Bank of England. Inflation is now forecast to hit 13% at the back end of this year, when the UK is also expected to enter into a recession, just in time for Christmas.”

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mortgage repayments

Millions to be affected by latest rate hike

It is thought the latest rate hike will have an immediate impact on around two million homeowners with mortgages. However, there will be an impact on millions of other people who might be looking to remortgage or buy their first property.

The rise in mortgage repayments could have a serious financial impact on those already struggling with soaring living costs. As a result, this could see a sharp rise in repossessions if homeowners cannot keep up with rising mortgage repayments.