Bank of England Warns of the Longest Recession in 100 Years

IANS 04 November 2022

Public Interest

The Bank of England has warned the UK risked being plunged into the longest recession in 100 years after it pushed up the cost of borrowing to 3% in the biggest single interest rate rise since 1989.

A 0.75 per cent increase, the latest in a series of eight interest rate rises since last year, would not be enough to guarantee victory in the war against double-digit inflation, the Bank said, as it cautioned further action would be needed.

The UK economy faces a 'very challenging outlook', with a recession that began this summer now expected to last until the middle of 2024, the Guardian reported.

With the possibility of a general election being held in 2024, the Conservatives face campaigning to remain in government at the tail end of a prolonged slump, during which the Bank said it expected unemployment to rise from 3.5% to 6.5%.

However, there was some relief for mortgage-holders as the central bank downplayed City expectations of a steep rise in the cost of borrowing to above 5%, arguing that the prospect of a two-year recession meant it was likely to take a much less aggressive stance.

Andrew Bailey, the Bank's governor, said: "We can't make promises about future interest rates, but based on where we stand today, we think the bank rate will have to go up by less than currently priced in financial markets."

The last time UK rates rose by more than 0.5% was in 1989, reports the Guardian.

John Major's government was forced into a 2% rise during the exchange rate mechanism crisis in 1992, though for less than 24 hours before it was scrapped.

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Comments

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milindnadkarni

2 years ago

I think it is not just the UK that faces the risk of plunging into recession, but 26 other countries in EU too. If Germany goes ahead (and as of today, it has every intention of going ahead) with its massive subsidy of USD 200 Billions, there is a distinct possibility of beginning of a "subsidy war" amongst EU countries to stay competitive internally within EU.

On the other hand, with winter round the corner, fuel prices have already reached very, very high levels compared to Jan'22 (i.e. prior to Russian invasion of Ukraine). Two important factors adversely affecting the situation is : Russia has made much more money post imposing of sanctions than prior to invasion & US is not able to "help" EU to lower energy bills of EU as much as it can.

As if this was not enough, Three events make the entire situation very dangerous : (a)Russia's overt announcement to acquire ~2,400 dangerous drones from Iran, (b)decision of OPEC (particularly Saudi Arabia) to cut back oil production which will push crude prices higher & (c)indirect signals from Russia to use nuclear weapons in the war.

Even we in India will face massive repercussions of these events on our economy. Terrible uncertain times