London Daily

Focus on the big picture.
Friday, Sep 11, 2026

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
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
UK Announces New Sanctions Targeting Israeli Settlements in West Bank
Metropolitan Police Investigate Alleged Illegal Donations to Reform UK
UK Charges Wiltshire Man With Assisting Russian Intelligence
UK Orders Urgent Review After Air Traffic Failure Cancels More Than 2,000 Flights
Merz Rebukes AfD Expansion in Saxony-Anhalt
King Charles Confirms Prince Harry and Meghan Will Remain Private Citizens
Labour Selects Former Child Refugee for By-Election in Keir Starmer’s Former Seat
Foreign Private Equity Accelerates Takeovers of London-Listed Industrial Companies
NHS Maternity Care Faces Scrutiny Over Support for Mothers After Caesarean Births
BBC Warns Staff Strikes Are Likely Amid Job Cuts and Programme Cancellations
English Housing Affordability Improves to Best Level in More Than a Decade
UK Health Commission Proposes Framework for Wider AI Adoption Across NHS
Labour Faces Pressure for Wealth Tax Ahead of Autumn Budget
Metropolitan Police Open Criminal Investigation Into Alleged Foreign Donations to Reform UK
UK Police Deploy Riot Officers After Anti-Immigration Unrest in Portsmouth and Dover
UK Defends Sanctions on Israeli Settlements Despite Diplomatic Retaliation
UK Air Traffic Control Failure Cancels More Than 1,000 Flights and Disrupts 65,000 Passengers
Compass Urges £10 Million Wealth Tax and Public Ownership Ahead of UK Autumn Budget
UK Government’s Devolution Plans Face House of Lords Scrutiny
Maldives Seeks New Chagos Sovereignty Talks With UK Prime Minister Andy Burnham
×