Bank of England Predicts Bad News
Hardly known for making positive predictions at the best of times, the Bank of England has released a warning that the UK is about to slide into the worst and longest recession since records began.
This comes as it raised interest rates from 2.25% to 3%, which is the biggest jump in 33 years.
At the forefront of its gloomy predictions is the very likely possibility that unemployment could double by 2025.
Whilst it acknowledges that things are going to get very tough, the Bank of England also says that there really isn’t much of a choice, given that not acting forcefully now could result in things getting even worse later on.
The aim of raising rates is to try and tackle the soaring cost of living crisis, which in itself has risen at the fastest rate in 40 years.
Households are already struggling, and the news of a looming recession (and the worst one ever at that) will come as a devastating blow to any hope of an up turn in peoples’ fortunes.
During any recession, we see companies earn less, pay rates take a dive and unemployment numbers rise, all of which meaning that the government receives less money in tax to spend on public services.
In actual fact, whilst the Bank had previously predicted a recession in late 2022 that would last around 12 months, it now thinks that we have already been in a recession since the summer, something that many people out there will relate to.
Things have been bad, but with unemployment currently at the lowest it’s been for 50 years, things could take a very quick nose dive, as conservative estimates reckon it could rise to around 6.5%.
Who and what do we have to thank for all this?
War in Ukraine, aside from being a humanitarian disaster, has affected worldwide markets, but the short lived Premiership of Liz Truss hasn’t exactly helped. Her and Kwasi Kwarteng’s mini budget caused turmoil and it has left a lasting impact.
Yes, they were both ultimately sacked or forced to resign, but the damage was done.
New Chancellor, Jeremy Hunt, said that…
“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.”
…but British households are already feeling the pinch with food prices and energy bills, meaning that higher mortgage rates are anything but a positive step in the right direction for many.
So, what’s the theory behind the move by The Bank of England?
It believes that raising interest rates discourages both spending and borrowing, which should ease the pressure on price increases in the process. It’s good for savers, but not so good for those with mortgages or loans to pay off, as their repayments could well increase.
Rishi Sunak will unveil further plans and budgets on the 17th November, but until then, many will be making frantic calculations about what they can and what they must do without.
Oh, and Christmas is next month…
Here at #TeamCES, we’re expecting to be involved in the fall out from all this, but we’ll be there for people on all sides of all situations.
Yes, we’ll be helping our clients to get back what they are owed, but we will also be carefully watching the situation unfold, with a firm understanding that, for some people, this could well tip them over into being incredibly vulnerable.
Interest rates are going up, again.
Problems usually go up too.