Governor says UK economy will be in recession all of next year and first half of 2024 

The Bank of England has today raised the base interest rate 0.75% to 3% to curb spiralling inflation, which hit 10.1% year-on-year in September.

Rising mortgage rates were expected to “weigh on household spending for sometime”, the monetary policy report said.

Although, it added the “sharp tightening in mortgage availability seen during late September is not assumed to persist over the forecast period” and said there had been “moderate falls in some mortgage rates in the days leading up to [today]”.


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The Bank of England said the economy will be in recession for 18 months from next January

But the UK economy is expected to remain in recession throughout next year and the first half of 2024, the bank warned, as prices for energy, food and other bills continue to rise.

“Inflation is too high. It is well above our 2% target,” the monetary policy committee wrote in its report. “Raising interest rates is the best way we have to bring inflation down.”

The committee’s central projection is for GDP growth to be -1.5% in 2023 and -1% in 2025. The bank expects GDP growth to go up around .75% in 2025 but it will “remain well below pre-pandemic rates”.

Tim Bannister, Rightmove’s director of data services, said: “The era of historically low interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.”

Richard Donnell, executive director of Research at Zoopla said the markets has been expecting a jump in the base rate.

”Most borrowers use fixed-rate loans so it’s the cost of 2 and 5 year fixed rate money for banks that underpins mortgage rates more than the base rate. Today’s jump does not worsen the outlook for mortgage borrowers but home buyers need to realise that 4-5% mortgages are set to be the norm in future, not the 1-2% of recent years.”

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The chancellor Jeremy Hunt reacted saying: “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.”

Housebuilders share prices dropped today in anticipation of the base rate rise. Estate agent Savills predicted house prices would drop by 10% next year with mortgage rates increasing and the worsening cost of living crisis.

The base rate will next be reviewed on 15 December.