Bank of England Warns of Longest Recession Ever

Amid announcing another interest rate hike from 2.25% to 3% on Thursday, the Bank of England (BOE) warned that the UK faces its worst recession since records began in the 1920s.

Bank of England Warns of Longest Recession Ever
Image credit: Kai Pilger / Unsplash

Facts

  • Amid announcing another interest rate hike from 2.25% to 3% on Thursday, the Bank of England (BOE) warned that the UK faces its worst recession since records began in the 1920s.
  • Treasury head Jeremy Hunt now faces calls to explain how homeowners should deal with the 0.75% increase, the highest single-rate increase since 1979, amid reported concerns that homeowner's mortgage payments could breach more than 40% of their gross salary.
  • According to the UK's National Institute of Economic and Social Research, variable mortgage rates are set to double if the central bank's rate hits 5%, which could raise the average variable rate from £500 to over £1,000. Around 30K households could see monthly rates become greater than their monthly incomes.
  • Though the BOE's forecasts say the UK is already in a recession that could last until 2024, BOE Head Andrew Bailey said that he thinks rates won't go as high as markets have braced for, adding, "it means that rates of new fixed-term mortgages should not need to rise as they have done."
  • Inflation has cooled some since its August peak, but food prices jumped 14.6% in the year through September, and mortgage rates are up to a 6.5% average compared to 2% last year.
  • Although the bank predicts the recession will be the longest on record, it's expected to bring a milder 2.9% economic decline compared to the 6.3% decline seen after the 2008 crash.

Sources: BBC News, National, niesr, Axios, Abc, and Finance Yahoo.

Narratives

  • Establishment-critical narrative, as provided by iNews. Previous rate hikes haven’t improved the financial environment for buyers and savers, so the BOE’s claim that it’s raising rates to improve the situation rings hollow. With the price of goods outpacing peoples' pensions and savings accounts — and now these rate hikes making it nearly impossible to pay off home loans — it appears the BOE is intent on following bad policy with something worse.
  • Pro-establishment narrative, as provided by Unbiased. Rate hikes by the central bank in the UK, as in the US, are necessary and are slowly working to cool the economy. Prospective homebuyers may have to wait to buy a house in the short term, but it’s more important right now to tackle inflation with these rate raises.