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Johnson, Boris

Britain Careering Towards Recession as Bank of England Warns of Inflation and Unemployment Spikes

Strategic Insights

— 1 min read

The British economy is facing its bleakest outlook since the 80s, with the Bank of England warning that Britons are set to face a quadruple whammy of inflation, energy bills, interest rate hikes, and unemployment. Governor Andrew Bailey announced a 0.25 percentage point interest rate hike to 1%, citing a 10% inflation forecast, which would be the highest since 1982, and a potential rise in unemployment to 5.5%. This comes as families are already struggling to make ends meet due to crippling price rises, with the Joseph Rowntree Foundation estimating that the average household will be £1,200 worse off this year.

Key Takeaways:

  • The Bank of England warned that the UK economy is set to shrink in the final three months of 2022 and could remain below zero next year, with the potential for a "very sharp slowdown".
  • The Bank's Monetary Policy Report showed that the single biggest driver of inflation is a leap in global energy prices, which had risen dramatically even before Russia's invasion of Ukraine in March.
  • Regulator Ofgem lifted prices for 22 million households by a record average of 54% last month, taking a typical annual bill to £1,971, and the Bank expects them to surge by another 40% in October, taking payments to £2,800 a year.
  • The Bank projected that real household disposable incomes would fall by 1.75% this year, the biggest drop since records began in 1964, and that unemployment would rise to 5.4% by 2025.
  • Campaigners, including the TUC's Kate Bell and the GMB's Gary Smith, are urging the government to take emergency action, including introducing a windfall tax on oil and gas companies, to help tackle the cost-of-living crisis.

Statistics:

  • 1% interest rate hike
  • 10% inflation forecast
  • 5.5% potential rise in unemployment
  • £1,200 average household loss due to price rises
  • 1.75% real household disposable income drop
  • £1,971 average annual energy bill after Ofgem price hike
  • £2,800 expected average annual energy bill in October
  • 5.4% unemployment rate by 2025 (projected)
  • 2 million homeowners on variable rate loans who will be affected by the interest rate hike

Sources:

  • The Bank of England Monetary Policy Report
  • The Guardian
  • The Daily Telegraph
  • The Joseph Rowntree Foundation
  • Unite's boss Graham
  • The GMB's Gary Smith
  • The TUC's Kate Bell

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