Bank of England warns UK of longest recession ever recorded
What is a recession and how long will it last?
A recession occurs when a country’s economy shrinks for two consecutive three-month periods, otherwise known as two quarters. During a recession, companies typically make less money, which causes unemployment rates to increase and therefore the government to receive less in tax monies. With less money paid in taxes, public spending on infrastructure, health services and education is usually reduced.
The Bank of England previously predicted that the UK would enter into a recession by the end of 2022. They also estimated that the recession would last for around one year – until the end of 2023. However, analysts working for the bank have recalibrated their projections and believe the UK has been in a recession since the summer. The Office for Budget Responsibility (OBR) and Jeremy Hunt have confirmed that we’re now in a recession. Analysts believe the current recession will last for approximately two years until a time in the middle of 2024.
Although the recession isn’t expected to be the UK’s biggest downturn, it is expected to be the longest since records began. The initial estimate was that the UK would experience a deep but sharp recession, whereas the new predictions are estimating a longer but shallower recession.
Unemployment estimated to almost double
As mentioned earlier, a recession and rising unemployment will go hand in hand. The current unemployment rate in the UK is at its lowest for circa 50 years, hovering at 3.5%. But as the recession continues, the UK unemployment rate will rise significantly. The Office for National Statistics published the central bank’s unemployment projections, indicating that unemployment will almost double to 6.4% by the fourth quarter of 2025.
What’s causing longest recession predictions?
Several events have contributed to the prediction that the UK will experience its longest recession on record. The fallout of the pandemic and Russia’s invasion of Ukraine - which has caused food, oil and energy prices to increase - are two major factors that have slowed down the economy.
Another contributing factor is rising interest rates. The Bank of England is continually raising interest rates to try and get inflation under control. The latest increase of 0.75% is the biggest single increase in over three decades. When interest rates are increased to curb inflation, the action discourages economic activity as it encourages people to save instead of spend. Therefore, the Bank of England’s decisions also contributes to the recession. On the other hand, if the central bank doesn’t make these decisions, the situation can be worse later on.
If you’re worried about how a recession will affect your mortgage repayments, don’t hesitate to speak with our experienced mortgage advisers.
December 2022