London Daily

Focus on the big picture.
Sunday, Aug 10, 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
Street justice isn’t pretty but how else do you deal with this kind of insanity? Sometimes someone needs to standup and say something
Armenia and Azerbaijan sign U.S.-brokered accord at White House outlining transit link via southern Armenia
Barcelona Resolves Captaincy Issue with Marc-André ter Stegen
US Justice Department Seeks Release of Epstein and Maxwell Grand Jury Exhibits Amid Legal and Victim Challenges
Trump Urges Intel CEO Lip-Bu Tan to Resign Over Alleged Chinese Business Ties
Scotland’s First Minister Meets Trump Amid Visit Highlighting Whisky Tariffs, Gaza Crisis and Heritage Links
Trump Administration Increases Reward for Arrest of Venezuelan President Maduro to Fifty Million Dollars
Armenia and Azerbaijan to Sign US-Brokered Framework Agreement for Nakhchivan Corridor
British Labour Government Utilizes Counter-Terrorism Tools for Social Media Monitoring Against Legitimate Critics
OpenAI Launches GPT‑5, Its Most Advanced AI Model Yet
Embarrassment in Britain: Homelessness Minister Evicted Tenants and Forced to Resign
President Trump nominated Stephen Miran, his top economic adviser and a critic of the Federal Reserve, to temporarily fill an open Fed seat
The AI-Powered Education Revolution: Market Potential and Transformative Impact
Chikungunya Virus Outbreak in Southern China: Over 7,000 Hospitalized
French wine makers have seen catastrophic damage to vines that were almost ready to be harvested after the worst fires in more than 70 years burned through the south of the country
US Lawmaker Probes Intel CEO’s China Ties Amid National Security Concerns
Brazilian President Lula says he’ll contact the leaders of BRICS states to propose a unified response to U.S. tariffs
Trump Open to Meeting Putin as Soon as Next Week, with Possible Trilateral Summit Including Zelenskiy
Katy Perry and Justin Trudeau spark dating rumors, joining high stakes world of celeb-politician romances
US envoy Steve Witkoff arrived in Moscow to seek a breakthrough in the Ukraine war ahead of President Trump’s peace deadline
WhatsApp Deletes 6.8 Million Scam Accounts Amid Rising Global Fraud
Nine people have been hospitalized and dozens of salmonella cases have been reported after an outbreak of infections linked to certain brands of pistachios and pistachio-containing products, according to the Public Health Agency of Canada
Karol Nawrocki Inaugurated as Poland’s President, Setting Stage for Clash with Tusk Government
Trump Signals JD Vance as ‘Most Likely’ MAGA Successor for 2028
US Charges Two Chinese Nationals for Illegal Nvidia AI Chip Exports
Texas Residents Face Water Restrictions While AI Data Centers Consume Millions of Gallons
U.S. Tariff Policy Triggers Market Volatility Amid Growing Global Trade Tensions
Tariffs, AI, and the Shifting U.S. Macro Landscape: Navigating a New Economic Regime
Representative Greene Urges H-1B Visa Cuts Amid U.S.-India Trade Tensions
U.S. House Committee Subpoenas Clintons and Senior Officials in Epstein Investigation
Sydney Sweeney Registered as Republican as Controversial American Eagle Ad Sparks Debate
Trump Accuses Major Banks of Politically Motivated Account Denials and Prepares Executive Order
TikTok Removes Huda Kattan Video Over Anti-Israel Conspiracy Claims
Trump Threatens Tariffs on India Over Russian Oil Imports
German Finance Minister Criticizes Trump’s Attacks on Institutions
U.S. Proposes Visa Bond of Up to $15,000 for Some Applicants
U.S. Farmers Increase Lobbying Amid Immigration Crackdown
Elon Musk Receives $23.7 Billion Tesla Stock Award
Texas House Paralyzed After Democrats Walk Out Over Redistricting
Mexican Cartels Complicate Sheinbaum’s U.S. Security Talks
Mark Zuckerberg Declares War on the iPhone
India Rejects U.S. Tariff Threat, Defends Russian Oil Purchases
United States Establishes Strategic Bitcoin Reserve and Digital Asset Stockpile
Thousands of Private ChatGPT Conversations Accidentally Indexed by Google
China Tightens Mineral Controls, Curtailing Critical Inputs for Western Defence Contractors
OpenAI’s Bold Bet: Teaching AI to Think, Not Just Chat
Tesla Seeks Shareholder Approval for $29 Billion Compensation Package for Elon Musk
Nvidia is cutting prices on its RTX 50-series graphics cards after sales slowed and inventories piled up
Ghislaine Maxwell Transferred to Minimum-Security Prison Amid Ongoing DOJ Discussions
U.S. Tariffs Surge to Highest Levels in Nearly a Century Under Second Trump Term
×