London Daily

Focus on the big picture.
Friday, Aug 07, 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
HMRC’s 2029 Tax Shift Could Overlap Old and New Self-Assessment Bills
Thetford Disorder Prompts Expanded Police Powers Amid Asylum-Housing Protests
Cambridge Faces Calls for Independent Review of Jason Arday Appointment
Scotland’s ‘Cock of the North’ Woodland Is Being Felled After Wind Damage
Reform UK and Greens Unite Against Vast Solar Plans for Kent Marshland
New Zealand Draws Wealthy Americans With Revamped Investor Visa
Senate Panel Votes to Hold Anthony Fauci in Contempt After Fifth Amendment Testimony
Cambridge Professor Jason Arday Resigns as University Opens Inquiry Into His Credentials
Manchester Power Failure Disrupts Trains Across North West Into Friday
UK Fashion and Tourism Sectors Prepare for Strong Summer and Autumn Activity
London Residents Seek Appeal Against Approval for Chinese Super-Embassy Development
UK Environment Officials Issue Biosecurity Alert Over Rising Bluetongue Cases in Livestock
UK Charity Regulator Opens Investigations Into Donations Linked to Israeli Settlements
Gatwick Expansion and Chinese Embassy Plans Highlight Growing UK Infrastructure Disputes
UK Agriculture Authorities Warn of Rising Bluetongue Virus Cases Among Sheep Farms
UK Watchdog Finds Electronic Monitoring Failures Leaving Some Offenders Without Timely Alerts
Metropolitan Police Investigate Covent Garden Knife Attack That Injured Four Men
UK Government Confirms Severe Terror Threat Level as Prevent Programme Expands
Diageo Plans Guinness Expansion While Cutting Jobs Through Global Restructuring Programme
Bank of England Keeps UK Borrowing Costs Stable While Markets Await Future Rate Cuts
Gatwick Airport Wins Approval for Second Runway Expansion After Legal Challenges Fail
Apple Challenges UK Government Over Demand for Access to Encrypted iCloud Data
London Approves First Autonomous Taxi Licences for Wayve and Uber Passenger Trials
UK Artificial Intelligence Safety Institute Finds Advanced AI Models Showing Deceptive Behaviour in Security Tests
UK Small Boat Channel Crossings Fall Forty-Three Percent as Government Highlights France Cooperation
UK Government Plans Procurement Reforms to Boost British Jobs and Domestic Steel Supply Chains
Bank of England Holds Interest Rates at Three Point Seven Percent as Inflation Stays Above Target
EY Raises UK 2026 Growth Forecast to Zero Point Nine Percent as Energy Risks Remain a Concern
UK Artificial Intelligence Regulation and Public Infrastructure Investment Remain Key Policy Focus Areas
Kemi Badenoch Faces Criticism Over Appointment of Former Neo-Nazi Linked Figure to Advisory Role
AG Barr Reports £10 Million Sales Loss After Supply Chain and Planning Failures
UK Government Fast-Tracks Specialist Care Pathways for Motor Neurone Disease Patients
UK Government Connects More Than 60,000 Rural Homes and Businesses to Gigabit Broadband
Next Raises Full-Year Profit Forecast After Strong Summer Sales
Metropolitan Police Arrest Woman After Four Men Stabbed in Central London’s Covent Garden Area
UK Procurement Reform and Infrastructure Spending Signal New Focus on Regional Economic Growth
UK Government Expands Global Talent Visa Access for International Researchers and Innovators
NHS Launches £343 Million Expansion of Community Mental Health Centres Across England
UK Treasury Explores Higher Borrowing Capacity for Infrastructure and Housing Investment
UK Cabinet Office Reforms Procurement Rules to Direct £90 Billion of Public Spending Toward Jobs and Skills
UK Government Considers Public Inquiry Into Jeffrey Epstein’s Activities and Possible Institutional Failures
Britain’s AI Safety Institute Finds Advanced Models Creating Fake Identities and Malicious Code During Tests
Lightning Strike Kills Yala FC Player During Match in Southern Thailand
Senate Scrutinises AI-Driven Personalised Pricing
Spain Seeks Mainland Transfers for 1,100 Children Stranded in Ceuta
UK Government Pushes New Procurement, Skills and Technology Policies Amid Economic Pressure
UK Charity Commission Investigates Donations Linked to Israeli Settlement Groups
UK Government Faces Pressure Over Possible Windfall Tax on Bank Profits
South East Water Provides Emergency Support After Kent Supply Disruptions
UK Defence Supports US Operation to Seize Russian-Flagged Oil Tanker in North Atlantic
×