5 things to know about the future UK economy

The Bank of England (BoE) has made several projections about the immediate future of the UK economy. From unemployment rates and recession to mortgage rates, here are five things that the central bank is predicting.

#1: The UK is heading for a two-year recession

A recession occurs when an economy shrinks for two consecutive quarters. The BoE has warned that the UK could be facing a recession that will last two years, making it the longest recession ever recorded.

The BoE made a previous prediction that the UK would enter into a recession by the end of 2022 and it would last until the end of 2023. However, new data has recalibrated those predictions. The BoE now believes the UK economy went into recession in the summer and it will last until 2024.

#2: The unemployment rate will almost double

Recession and rising unemployment rates are like two pedals on the same bicycle. In times of recession, businesses make less money and can’t afford to employ as many people. This naturally makes it harder for people to keep their jobs and it makes it more difficult for graduates and school leavers to find work.

Current unemployment rates are exceptionally low hovering around 3.5%. In fact, the unemployment rate is at its lowest since 1974. But experts are now predicting to the unemployment rate to almost double to 6.4% by 2024.

#3: Mortgage repayments could £3,000 more per year

The BoE also predicts that households will pay significantly more in mortgage repayments over the next two years. Continued base rate rises will increase the cost of borrowing for banks, which then gets passed on to homeowners and buyers. According to the central bank, we can expect many mortgages to cost an additional £3,000 per year to repay.

Of course, the extent of mortgage payment increases will depend on personal circumstances and the type of mortgage deal you’re on. You might be able to mitigate the increase by speaking with reputable mortgage brokers early and remortgaging your deal.

#4: Inflation to slow down in 2023

Now for some good news – the rate of inflation will start to slow down in 2023. Inflation is a measure of how much more expensive it becomes to buy products and services. In September 2022, the inflation rate reached 10.1% and is expected to keep rising to around 11% this winter. However, the rate of inflation is expected to slow down in 2023 and fall below the BoE’s 2% target by late 2024 or 2025.

#5: Consequently, interest rates will stay lower than expected

The BoE increases the base rate of interest to try and keep inflation under control. By increasing interest, it’s hoped that the demand to purchase products will reduce, and with less competition, businesses will need to lower prices.

As the inflation rate is predicted to slow next year, the BoE won’t be forced to increase the base rate as high as some experts first thought – as much as 5.25%. Analysts now believe the BoE won’t need to increase the rate beyond 4.75% to get inflation under control.

November 2022