The UK will enter a more than year-long recession this winter, the Bank of England has said.
It comes as the base interest rate saw the biggest hike in 27 years to the highest level since December 2008 in the aftermath of that year’s global economic crash.
The Bank’s experts set the rate at 1.75%, up from 1.25% previously, and the sixth increase in a row as it tries to curtail runaway inflation.
“The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe,” the Bank said.
“The United Kingdom is now projected to enter recession from the fourth quarter of this year.”
The UK will enter five consecutive quarters of recession with gross domestic product falling as much as 2.1%, the Bank said.
Citizens Advice Scotland has said Thursday’s rise in interest rates will hit people hard and called governments to recognise the scale of the crisis and make more support available to those who are struggling.
The Bank of England predicted inflation will peak at more than 13% as gas prices soar.
Consumer Prices Index inflation will hit 13.3% in October, the highest for more than 42 years, if regulator Ofgem hikes the price cap on energy bills to around £3,450, the Bank’s forecasters said.
After a year of the economy shrinking in 2023, growth in 2024 is predicted to be “very weak by historical standards”.
The dire economic conditions will see real household incomes drop for two years in a row, the first time this has happened since records began in the 1960s. They will drop by 1.5% this year and 2.25% next.
However, the recession will at least be shallower than the 2008 crash, with GDP dropping up to 2.1% from its highest point.
Bank officials said that the depth of the drop is more comparable to the recession in the early 1990s.