London Daily

Focus on the big picture.
Saturday, Sep 12, 2026

Bank of England: Five things we now know about the UK economy

Bank of England: Five things we now know about the UK economy

The outlook for the UK's economy is fairly bleak.

The Bank of England raised interest rates again on Thursday and has warned the UK is heading for its longest recession since the 1930s Great Depression.

Here are five things we learned from the central bank about the future of the economy.

1. UK set for two-year recession


The UK is facing its longest recession on record, with the Bank of England warning the country faces a "very challenging" two-year slump.

When a country is in recession, it's a sign that its economy is doing badly. A recession is when a country's economy shrinks for two three-month periods in a row.

This has been forecast in the UK for some time due to the prices of goods such as food, fuel and energy soaring, which is down to several factors, including the war in Ukraine.

Previously, the Bank had expected the UK to fall into recession at the end of this year and said it would last for all of next year.

But now it thinks the economy already entered a recession this summer, and predicts it will continue next year and into the first half of 2024.

2. Unemployment rate to nearly double


Typically when a country is in recession, companies make less money and the number of people unemployed rises.

Graduates and school leavers also find it harder to get their first job.

The unemployment rate in the UK is set to rise significantly over the next two years to 6.4%, the Bank predicts.

Currently, the jobless rate is at 3.5%, its lowest level since 1974, thanks to a jobs boom as the economy started to recover from the pandemic.

But experts were already warning that the tide might be starting to turn due to the number of job vacancies falling in recent months.


3. Some mortgages could rise by £3,000 a year


Many homeowners will probably face higher mortgage repayments in the next two years, the Bank said.

Mortgage rates have been rising and those on fixed-rate deals, which make up about 80% of mortgages, will face an increase in repayments when their fix comes to an end.

Annual payments could soar by £3,000 in some cases, according to the Bank.

But with the latest hike in interest rates from the central bank widely expected, many lenders "priced in" the rise by raising their mortgage rates in advance.

According to Simon Gammon, managing partner at mortgage advisers Knight Frank Finance, most lenders are offering fixed rates of between 5.5% and 6%, so he says further rises would come as a surprise.

Those on tracker or variable rate mortgages will see their monthly payments go up with any future rate rises from the Bank of England.


4. Inflation to slow down next year


The inflation rate is a measure of the increase in the price of something over time.

For example, if a loaf of bread costs £1 and it goes up to £1.05 a year later, then bread inflation is 5%.

Inflation hit 10.1% in September, is expected to peak at 11% this winter, before falling next year.

The Bank's target is to keep inflation at 2%.


5. Interest rates won't go up as much as previously expected


The Bank of England puts up interest rates to try to control inflation. The idea is that people will be discouraged from borrowing and in turn have less money to spend, leading to prices rising more slowly.

With inflation expected to fall next year, the Bank does not expect interest rates to rise by as much as predicted.

November's interest rate rise takes the current rate to 3%.

Further rises are on the way - so borrowing on credit cards, loans and mortgages will still get more expensive - but they won't hit the 5.25% that financial markets had predicted.

Analysts now think they could peak at around 4.75% next year.

Newsletter

Related Articles

0:00
0:00
Close
Chinese Crypto Entrepreneur Leon Li Identified as Seller of £190 Million London Mansion
Trades Union Congress Proposes Social Energy Tariff Funded by Higher Bank Surcharge
British Chambers of Commerce Calls for State Pension Triple Lock to Be Scrapped
Anthropic Says Claude Helped Disrupt Biological Weapons and Cyber Espionage Threats
UK Imposes Sanctions Over Israeli Settlements and West Bank Violence
UK Reimposes Sectoral Sanctions on Iran’s Aviation, Shipping and Energy Networks
UK Economy Grows 0.4% in July as AI and Programming Services Lift Activity
UK House of Commons Rejects Assisted Dying Bill by 286 Votes to 270
UK Reviews Nationwide Emergency Alert Tests After Systems Meet Reliability Targets
UK Seeks Faster Rail Links Across Northern Industrial Corridors
British Business Bank Allocates £150 Million for High-Growth Companies in Northern England
BBC Warns Staff Strikes Are Possible Amid Pay Dispute and £500 Million Savings Drive
UK Backs Short Extension of UN Sudan Sanctions Regime
Prime Minister Andy Burnham Defends Early Prison Release Reforms and Growth Strategy
Reform UK Faces Scrutiny Over Alleged Effort to Circumvent Foreign Donation Rules
UK Analysts Warn Tax Rises or Spending Cuts May Be Needed to Preserve Fiscal Headroom
Jaguar Land Rover Plans Up to 4,000 Job Cuts in £1.7 Billion Cost-Saving Drive
UK Chancellor Warns of Difficult October Budget as Borrowing Costs Rise
UK Declares Israeli Occupation of West Bank Unlawful and Expands Sanctions
UK House of Commons Rejects Assisted Dying Bill for England and Wales
English Councils to Gain Power to Introduce Tourist Taxes by 2028
Kemi Badenoch Reshuffles Conservative Shadow Cabinet
Firefighters Make Progress Containing Major Wildfires in South Wales
John Lewis Partnership Reports £124 Million Loss
Study Says UK AI Data Centres Will Create Only a Quarter of Forecast Jobs
UK Government Considers Higher Industrial Water Prices Amid Supply Pressures
Andy Burnham Holds First Call With Donald Trump as UK Prime Minister
NHS Records Busiest Summer on Record as Heatwaves Drive Hospital Admissions
Home Secretary Orders Police Crackdown on Far-Right Anti-Migrant Vigilantes
UK Supreme Court Rules Northern Ireland Religious Education Curriculum Breaches Human Rights Standards
Markets Price in Four Bank of England Rate Rises by Next Summer
House of Commons Prepares Free Vote on Assisted Dying Bill
UK Government Bans Trade With Israeli Settlements in Occupied Territories
UK Economy Grows 0.4% in July as Artificial Intelligence Investment Supports Expansion
Andy Burnham Becomes UK Prime Minister After Keir Starmer Resigns
John Lewis Partnership Loss Widens to £124 Million
UK Government to Put White Working-Class Social Mobility at Centre of Equality Policy
McLaren Plans £450 Million Technology Investment Creating 1,000 UK Jobs
UK Chancellor Faces Calls for Wealth Taxes and Public Ownership in Autumn Budget
English Mayors to Gain Powers to Impose Uncapped Overnight Tourist Taxes
JPMorgan’s Jamie Dimon Warns UK Government Against Bank Windfall Taxes
UK Air Traffic Control Outage Cancels More Than 2,000 Flights
UK Imposes Trade Ban on Israeli Settlements in the West Bank
UK Borrowing Costs Surge as Middle East Tensions Push Long-Term Gilt Yields to Highest Since 1998
Buckingham Palace Says Prince Harry and Meghan Will Not Resume Official Royal Duties
UK Treasury Faces Calls to Scrap £100,000 Childcare Support Threshold
Trades Union Congress Urges Labour Government to Rewrite Migration Policy
Riot Police Deployed After Anti-Migrant Protests Turn Violent in Portsmouth
UK Considers Replacing Some Disability Cash Payments With Direct Services
JPMorgan’s Jamie Dimon Warns UK Chancellor Against Higher Banking Taxes
×