London Daily

Focus on the big picture.
Saturday, Sep 20, 2025

Bank of England says recession expected to be shorter and less severe

Bank of England says recession expected to be shorter and less severe

The UK is set to enter recession this year but it will be shorter and less severe than previously thought, according to the Bank of England.

The slump is now expected to last just over a year rather than almost two as energy bills fall and price rises slow.

As a result fewer people are likely to lose their jobs, but the economy remains fragile, warned the Bank.

The forecast comes as interest rates were raised to 4% from 3.5%, their highest level in over 14 years.

The Bank has been putting up interest rates in a bid to tackle the soaring cost of living.

Inflation, the rate at which prices rise, remains close to its highest level for 40 years - more than five times what it should be.

Bank governor Andrew Bailey said inflation now appears to be falling, but warned there are still "big risks out there" which could continue to have an impact on the economy.

On Thursday, the Bank suggested interest rates may be nearing a peak, indicating it will only raise rates further if it sees signs that inflation will remain high.

However, the country is not forecast to bounce back to pre-Covid levels until 2026, which Mr Bailey said was "extraordinary".

"Covid has had bigger long-run effects than we thought it would, particularly in terms of things like the labour supply and people choosing to come out of participating in the labour force."

Higher interest rates are meant to encourage people to save more and spend less, helping to stop prices rising as quickly.

Thursday's hike in borrowing costs is the tenth in a row and will add pressure to many households already struggling with the cost of living.

The impact will be felt by borrowers through higher mortgage and loan costs, although it should also mean better returns for savers.

Homeowners with a typical tracker mortgage will now pay about £49 more a month. Those on standard variable rate mortgages face a £31 increase.

The Bank's predictions come after a separate forecast from the International Monetary Fund (IMF) suggested the UK would be the only major economy to shrink in 2023, performing worse than even Russia.

It is slightly more pessimistic than the IMF and it said that the UK economy would be weak for some time.

The UK has a record 1.1 million job vacancies while the number of people classed "economically inactive" - which is people aged between 16 and 64 not looking for work - has risen.

Mr Bailey said that in most countries, the number of economically inactive workers had fallen since the height of the pandemic, but this was not the case in the UK.

"That is what marks the UK out," said Mr Bailey.

A recession is defined as when the economy shrinks for two consecutive three-month periods. Typically companies make less money and cut jobs, leaving the government with less tax revenue to spend on public services.

The Bank is now predicting:

*  The economy will shrink by 1% versus 3%, largely because "wholesale energy prices have fallen significantly."

*  The unemployment rate will peak at 5.3% rather than 6.4%. It is currently 3.7%.

*  Inflation will fall back to 8% in June before dropping further to 3% by the end of the year.

*  If workers get big pay rises it could lead to a slower fall in inflation.

'I've docked my wage and reduced opening hours to cut costs'

Business owner Jo Williams is worried about the extra costs of an interest rate rise for her bed sales company and gift shop in Nuneaton.

The mortgage costs for the bed shop warehouse has gone up by £150 per month and her own home mortgage is also creeping higher.

To make up those losses, Jo has cut opening times from 9.30am to 5pm, to 10am to 4pm and for the first time in eight years has made one member of staff redundant.

"We tried everything to secure that job but it's a case of having to keep a very, very close eye on cash flow right now," she explained.


Chancellor Jeremy Hunt said the government would act in "lockstep" with the Bank to tackle inflation. This meant resisting the urge "to fund additional spending or tax cuts through borrowing, which will only add fuel to the inflation fire".

But Labour's shadow chancellor Rachel Reeves said: "The reality is that under the Tories growth is on the floor, families are worse off and we are stuck in the global slow lane."


Bank of England Governor Andrew Bailey: 'We think inflation will come down rapidly'


Newsletter

Related Articles

0:00
0:00
Close
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders Third Lethal Strike on Drug-Trafficking Vessel as U.S. Expands Maritime Counter-Narcotics Operations
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
Why Google Search Is Fading and AI Is Taking Its Place
UAE-US Stargate Project Poised to Make Abu Dhabi a Global AI Powerhouse
Federal Judge Dismisses Trump’s Fifteen-Billion-Dollar Suit Against New York Times, Orders Refile
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
DeepSeek Claims R1 Model Trained for only $294,000, Sparking Global Debate Over China’s AI Capabilities
SoftBank Vision Fund to Cut Nearly Twenty Percent of Staff in Bold AI Strategy Shift
Intel’s Next-Gen Manufacturing Gets a Lifeline from Nvidia’s Strategic $5B Deal
Erika Kirk Elected CEO of Turning Point USA After Husband Charlie Kirk’s Assassination
Massive Strikes in France Pressure Macron and New PM on Austerity Proposals
Trump Seeks Supreme Court Permission to Remove Fed Governor Lisa Cook
Hillary Clinton’s Reckless Rhetoric Fuels Division After Charlie Kirk’s Assassination
NASDAQ Rises to Record as Intel Soars More Than 20%, Nvidia Gains 3%
Nvidia’s $5 Billion Bet on Intel Reshapes AI Hardware Landscape
Trump and Starmer Clash Over UK Recognition of Palestinian State Amid State Visit
Trump’s Quip on Biden and Google Lawsuit Revives Debate Over Antitrust Legacy
Macron and his wife to provide 'scientific photographic evidence' that she is a real woman
US Tech Giants Pledge Billions to UK AI Infrastructure Following Starmer's Call
Saudi Arabia cracks down on music ‘lounges’ after conservative backlash
DeepMind and OpenAI Achieve Gold at ‘Coding Olympics’ in AI Milestone
SEC Allows Public Companies to Block Investors from Class-Action Lawsuits
Saudi Arabia Signs ‘Strategic Mutual Defence’ Pact with Pakistan, Marking First Arab State to Gain Indirect Access to Nuclear Strike Capabilities in the Region
Federal Reserve Cuts Rates by Quarter Point and Signals More to Come
Effective and Impressive Generation Z Protest: Images from the Riots in Nepal
European manufacturers against ban on polluting cars: "The industry may collapse"
Sam Altman sells the 'Wedding Estate' in Hawaii for 49 million dollars
Trump: Cancel quarterly company reports and settle for reporting once every six months
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
US Launches New Pilot Program to Accelerate eVTOL Air Taxi Deployment
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
Hong Kong Industry Group Calls for HK$20 Billion Support Fund to Ease Property Market Stress
Joe Biden’s Post-Presidency Speaking Fees Face Weak Demand amid Corporate Reluctance
Charlie Kirk's murder will break the left's hateful cancel tactics
Kash Patel erupts at ‘buffoon’ Sen. Adam Schiff over Russiagate: ‘You are the biggest fraud’
Homeland Security says Emmy speech ‘fanning the flames of hatred’ after Einbinder’s ‘F— ICE’ remark
Charlie Kirk’s Alleged Assassin Tyler Robinson Faces Death Penalty as Charges Formally Announced
Actor, director, environmentalist Robert Redford dies at 89
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
JD Vance Says There Is “No Unity” with Those Who Celebrate Charlie Kirk’s Killing, and he is right!
Trump sues the 'New York Times' for an astronomical sum of 15 billion dollars
Florida Hospital Welcomes Its Largest-Ever Baby: Annan, Nearly Fourteen Pounds at Birth
U.S. and Britain Poised to Finalize Over $10 Billion in High-Tech, Nuclear and Defense Deals During Trump State Visit
China Finds Nvidia Violated Antitrust Laws in Mellanox Deal, Deepens Trade Tensions with US
US Air Force Begins Modifications on Qatar-Donated Jet Amid Plans to Use It as Air Force One
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
×