London Daily

Focus on the big picture.
Saturday, Aug 22, 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
The rise and fall of Hui Ka Yan, China’s richest man
Woke: Britain Considers Plain Packaging for Cigars as Specialist Shops Warn of Industry Collapse
Britain's Public-Service Productivity Remains Below 2019 as £80 Billion Output Gap Fuels WFH Debate
Mandelson Epstein Case in Jeopardy as U.S. Files Stay Out of Reach
Prince Harry and Six Others Ordered to Pay £9.5 Million After High Court Defeat
Petrol Bombs Set Luxury Cars Alight Outside Birmingham Wedding as Police Hunt Three Men
Bitcoin Surges Toward $80,000 as Short Squeeze and ETF Inflows Ignite Crypto Rally
Prince Harry and Co-Claimants Ordered to Pay £9.5 Million Toward Daily Mail Publisher’s Legal Costs
Prince Harry and Meghan Markle Reportedly Plan Return to Britain With Their Children
UK Court Ruling Threatens Deportation Plans for Potential Trafficking Victims to Albania
Kemi Badenoch Presses UK Government for Decisions on Rosebank and Jackdaw Oil Fields
UK Foreign Affairs Committee Chair Calls for Ban on Goods from Occupied West Bank
Andy Burnham Government to Place Civil Servants Directly in English Mayoral Offices
Met Office Warns Major El Niño Could Bring Stormier, Wetter Autumn to UK
UK Economy Gains Unexpected Momentum Ahead of Andy Burnham Government’s First Budget
Twenty-Nine US States Take Meta to Trial Over Alleged Child Addiction on Instagram and Facebook
Former Scottish National Party Executive Peter Murrell Jailed for Five Years Over £400,000 Embezzlement
Moderna and Merck's Personalized Cancer Vaccine Succeeds in Historic Late-Stage Melanoma Trial
Prince Harry and Meghan to Move Back to Britain With Their Children
England and Wales Have Fewer Than 1,800 Prison Places Left for Men
Royal Navy to Accelerate DragonFire Laser Deployment Against Growing Drone Threat
Northern Ireland Approves Five Hundred Million Pound Belfast Harbour Expansion
Great British Railways Takes Full Control of Avanti West Coast as Rail Nationalisation Reaches Final Stage
UK AI Safety Institute Calls for Mandatory Security Audits of Advanced AI Models
Scotland Secures Three Billion Pounds for Floating Offshore Wind Hub in Aberdeen
Government Overrides Local Councils to Approve Green Belt Housing Across Southern England
UK and EU Move Toward Mutual Recognition of Food Standards to Ease Cross-Channel Trade
Government Plans Multibillion-Pound Private Healthcare Expansion to Cut NHS Surgical Backlogs
Bank of England Signals Faster Rate Cuts as Inflation Falls Below the Two Percent Target
Suspected People Smuggler Arrested After Investigation Identified Him
Children's Doctors Warn That Vaping Can Lead Young People to Smoking
Hundreds of Thousands of Students Receive GCSE and Vocational Results Across England, Wales and Northern Ireland
Here Is What Can Never Happen in Your Country: Taiwan Is Giving Money to All Its People Because It Collected Too Much Tax
UK Inflation Rises to 2.9% as Energy Bills Jump
UK Issues New Conduct Guide for Asylum Seekers on Consent and Respect
Moderna Shares Surge After Positive Personalized Skin Cancer Trial Results
UK Markets Watch US National Debt Surpass Forty Trillion Dollars
UK Broadcasters Urge Government to Invest in Digital Participation and Broadband
CVC Capital Partners and Standard Life Launch Two Billion Pound Pension Risk Transfer Venture
UK Private Sector Productivity Growth Accelerates in Second Quarter
UK Foreign Secretary Ed Miliband Condemns Israeli E1 Settlement Tender
UK Watchdog Investigates Trainline, Virgin Atlantic and RED Driving School Over Hidden Fees
Prince Harry and Meghan Markle Plan Move to Private Home Outside London
UK Retail Sentiment Improves as Summer Spending Boosts Consumer Confidence
UK Aid Cuts Draw Warnings From Charities Over Humanitarian Consequences
UK Financial Conduct Authority Issues Guidance for Motor Finance Redress Scheme
UK Met Office Launches Aviation Programme to Reduce Climate Impact of Persistent Contrails
Former UK Civil Service Chief Received Record 500,000 Pound Severance Payment
West Midlands to Bring Bus Network Under Public Franchising Model
UK Government Drops Plan to Relax Affordable Housing Requirements After Backlash
×