London Daily

Focus on the big picture.
Wednesday, Jul 23, 2025

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
US Treasury Secretary Calls for Institutional Review of Federal Reserve Amid AI‑Driven Growth Expectations
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Severe Flooding in South Korea Claims Lives Amid Ongoing Rescue Operations
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
CEO Resigns Amid Controversy Over Relationship with HR Executive
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
Epstein Files Deepen Republican Party Divide
Zuckerberg Faces $8 Billion Privacy Lawsuit From Meta Shareholders
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
SpaceX Nears $400 Billion Valuation With New Share Sale
Microsoft, US Lab to Use AI for Faster Nuclear Plant Licensing
Trump Walks Back Talk of Firing Fed Chair Jerome Powell
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Irish Tech Worker Detained 100 days by US Authorities for Overstaying Visa
Dimon Warns on Fed Independence as Trump Administration Eyes Powell’s Succession
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Jeff Bezos Considers Purchasing Condé Nast as a Wedding Gift
Ghislaine Maxwell Says She’s Ready to Testify Before Congress on Epstein’s Criminal Empire
Bal des Pompiers: A Celebration of Community and Firefighter Culture in France
FBI Chief Kash Patel Denies Resignation Speculations Amid Epstein List Controversy
Air India Pilot’s Mental Health Records Under Scrutiny
Google Secures Windsurf AI Coding Team in $2.4 Billion Licence Deal
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
South African Police Minister Suspended Amid Organised Crime Allegations
Nvidia CEO Claims Chinese Military Reluctance to Use US AI Technology
Hong Kong Advances Digital Asset Strategy to Address Economic Challenges
Australia Rules Out Pre‑commitment of Troops, Reinforces Defence Posture Amid US‑China Tensions
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
U.S. Resumes Deportations to Third Countries After Supreme Court Ruling
Excavation Begins at Site of Mass Grave for Children at Former Irish Institution
×