THE UK economy is likely to be in recession after the Bank of England announced it expects GDP to fall over the next quarter and that it would hike interest rates to their highest levels in more than a decade.
Interest rates – which determine how expensive it is to borrow money – now stand at 2.25%, their highest level since November 2008, when they were slashed in response to the credit crunch.
Gross domestic product, the value of all goods and services produced in a country in a year, is expected to shrink by 0.1%, the Bank has said, meaning it is likely the country is already in a recession.
The central bank had previously projected the economy would grow in the current financial quarter.
It comes after a reported 0.2% fall in GDP in the second quarter and would mean the economy is currently in recession.
A technical recession is when the economy shrinks for two quarters in a row.
The Bank’s Monetary Policy Committee (MPC) raised interest rates in what they said was an effort to tackle increases in the cost of living.
In committee minutes, it said the “tight labour with wage growth and domestic inflation” above targets called for a “forceful response”.
The decision to lift rates is a bid to keep inflation under control. It is the best tool that the Bank of England has to steer inflation – currently at 9.9% – back to its 2% target.
In the September meeting, the MPC also said inflation is now not due to soar as high as previously expected after Government announced plans to freeze energy prices for households earlier this month.
Consumer Price Index inflation is now set to peak at “just under 11%” in October. This would mark the highest inflation the UK has witnessed since January 1982.
