London Daily

Focus on the big picture.
Sunday, Jun 01, 2025

UK may already be in recession - Bank of England

UK may already be in recession - Bank of England

The Bank of England has raised interest rates from 1.75% to 2.25% - the highest level for 14 years - and warned the UK may already be in a recession.

The central bank had previously expected the economy to grow between July and September but it now believes it will shrink by 0.1%.

It is the Bank's seventh rate rise in a row as it tries to tame soaring prices.

It takes borrowing costs to their highest since 2008, when the global banking system faced collapse.

Inflation - the pace at which prices rise - is currently at its highest rate for nearly 40 years, leaving many people facing hardship.

Prices are also widely predicted to head higher in October, despite a government plan to limit soaring gas and electricity prices for households and businesses.

Raising interest rates makes it more expensive to borrow which should, in theory, encourage people to spend less and cool prices.

But many households with mortgages will see their costs rise. People on a typical tracker mortgage will have to pay about £49 more a month, while those on standard variable rate mortgages will see a £31 increase.

Those on fixed-rate deals will not be immediately affected, although their costs could jump when their deals come up for renewal.

The Bank now expects the UK economy to shrink between July and September. This comes after the economy already shrank slightly between April and June and will push the UK into recession, defined as when an economy shrinks for two consecutive quarters.

It said a smaller-than-expected bounce back in July from the June bank holiday to celebrate the Queen's Platinum Jubilee and the additional bank holiday in September for the Queen's state funeral had both hit the economy.

The Bank, however, said it now expected inflation to not rise as high as it originally expected, saying the government's help on energy bills for households and firms would help limit soaring prices.


It now expects inflation to peak at just under 11% in October, having previously forecast it would reach 13% next month.

Nevertheless, inflation is currently nearly five times the Bank of England's 2% target and even if it peaks in October, it is expected to remain above 10% "over the following few months" before starting to fall.

As the Bank acts to calm inflation, the new chancellor Kwasi Kwarteng is preparing to announce a "mini-budget" on Friday when he is expected to cut taxes and reveal other measures to boost economic activity. There has been some concern that the plans could fan inflation.

On Thursday the Bank said: "Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the [rate-setting] committee will respond forcefully, as necessary."

Paul Dales, chief UK economist at Capital Economics. said: "That new 'stronger demand' bit seems like a not-so-subtle reference to the loosening in fiscal policy that's expected to be announced tomorrow.

"In short, the Bank has indicated it will raise rates further to offset some of the boost to demand from the government's fiscal plans."

Some economists had expected the Bank to lift rates by 0.75 percentage points this month, in line with similar moves by the US Federal Reserve and the European Central Bank, and three of the MPC's nine members voted for such a rise.


'Nothing left to cut back'

In Grimsby, self-employed auditor Kristine Green said she had "nothing left to cut back on" as she struggled to cover the monthly cost of her variable rate mortgage.

She said her repayments had already gone up four or five times in the past year.

"There were two instances where the increases happened in such quick succession, I didn't even get a letter about it from my mortgage provider."

She said with the latest increase on Thursday, her mortgage would soon be edging on £460-470 per month, about £100 more than what she was paying this time last year.

Jonathan Fell is the managing director of the Ice Cream Farm in Cheshire


Higher interest rates will also drive up borrowing costs for businesses, many of which already face crippling energy and fuel bills.

Jonathan Fell, managing director of family theme park the Ice Cream Farm in Cheshire, said he had taken out millions of pounds in loans to develop the business in recent years.

Although some were on fixed five-year terms, an emergency government loan he was granted during the pandemic follows the base rate set by the Bank of England.

"Any further rate increases would be hugely worrying," he said. "It could actually finish the business depending on how far it goes."

Newsletter

Related Articles

0:00
0:00
Close
Hegseth Warns of Potential Chinese Military Action Against Taiwan
OPEC+ Agrees to Increase Oil Output for Third Consecutive Month
Jamie Dimon Warns U.S. Bond Market Faces Pressure from Rising Debt
Turkey Detains Istanbul Officials Amid Anti-Corruption Crackdown
Taylor Swift Gains Ownership of Her First Six Albums
Bangkok Ranked World's Top City for Remote Work in 2025
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Trump Threatens 25% Tariff on iPhones Amid Dispute with Apple CEO
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
Liverpool Car Ramming Incident Leaves Multiple Injured
Australia Faces Immigration Debate Following Labor Party Victory
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Macron Dismisses Viral Video of Wife's Gesture as Playful Banter
Cleveland Clinic Study Questions Effectiveness of Recent Flu Vaccine
Netanyahu Accuses Starmer of Siding with Hamas
Junior Doctors Threaten Strike Over 4% Pay Offer
×