London Daily

Focus on the big picture.
Monday, Jan 26, 2026

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
WhatsApp Develops New Meta AI Features to Enhance User Control
Germany Considers Gold Reserves Amidst Rising Tensions with the U.S.
Michael Schumacher Shows Significant Improvement in Health Status
Greenland’s NATO Stress Test: Coercion, Credibility, and the New Arctic Bargaining Game
Diego Garcia and the Chagos Dispute: When Decolonization Collides With Alliance Power
Trump Claims “Total” U.S. Access to Greenland as NATO Weighs Arctic Basing Rights and Deterrence
Air France and KLM Suspend Multiple Middle East Routes as Regional Tensions Disrupt Aviation
U.S. winter storm triggers 13,000-plus flight cancellations and 160,000 power outages
Poland delays euro adoption as Domański cites $1tn economy and zloty advantage
White House: Trump warns Canada of 100% tariff if Carney finalizes China trade deal
PLA opens CMC probe of Zhang Youxia, Liu Zhenli over Xi authority and discipline violations
ICE and DHS immigration raids in Minneapolis: the use-of-force accountability crisis in mass deportation enforcement
UK’s Starmer and Trump Agree on Urgent Need to Bolster Arctic Security
Starmer Breaks Diplomatic Restraint With Firm Rebuke of Trump, Seizing Chance to Advocate for Europe
UK Finance Minister Reeves to Join Starmer on China Visit to Bolster Trade and Economic Ties
Prince Harry Says Sacrifices of NATO Forces in Afghanistan Deserve ‘Respect’ After Trump Remarks
Barron Trump Emerges as Key Remote Witness in UK Assault and Rape Trial
Nigel Farage Attended Davos 2026 Using HP Trust Delegate Pass Linked to Sasan Ghandehari
Gold Jumps More Than 8% in a Week as the Dollar Slides Amid Greenland Tariff Dispute
BlackRock Executive Rick Rieder Emerges as Leading Contender to Succeed Jerome Powell as Fed Chair
Boston Dynamics Atlas humanoid robot and LG CLOiD home robot: the platform lock-in fight to control Physical AI
United States under President Donald Trump completes withdrawal from the World Health Organization: health sovereignty versus global outbreak early-warning access
FBI and U.S. prosecutors vs Ryan Wedding’s transnational cocaine-smuggling network: the fight over witness-killing and cross-border enforcement
Trump Administration’s Iran Military Buildup and Sanctions Campaign Puts Deterrence Credibility on the Line
Apple and OpenAI Chase Screenless AI Wearables as the Post-iPhone Interface Battle Heats Up
Tech Brief: AI Compute, Chips, and Platform Power Moves Driving Today’s Market Narrative
NATO’s Stress Test Under Trump: Alliance Credibility, Burden-Sharing, and the Fight Over Strategic Territory
OpenAI’s Money Problem: Explosive Growth, Even Faster Costs, and a Race to Stay Ahead
Trump Reverses Course and Criticises UK-Mauritius Chagos Islands Agreement
Elizabeth Hurley Tells UK Court of ‘Brutal’ Invasion of Privacy in Phone Hacking Case
UK Bond Yields Climb as Report Fuels Speculation Over Andy Burnham’s Return to Parliament
America’s Venezuela Oil Grip Meets China’s Demand: Market Power, Legal Shockwaves, and the New Rules of Energy Leverage
TikTok’s U.S. Escape Plan: National Security Firewall or Political Theater With a Price Tag?
Trump’s Board of Peace: Breakthrough Diplomacy or a Hostile Takeover of Global Order?
Trump’s Board of Peace: Breakthrough Diplomacy or a Hostile Takeover of Global Order?
The Greenland Gambit: Economic Genius or Political Farce?
The Greenland Gambit: Economic Genius or Political Farce?
The Greenland Gambit: Economic Genius or Political Farce?
Will AI Finally Make Blue-Collar Workers Rich—or Is This Just Elite Tech Spin?
Prince William to Make Official Visit to Saudi Arabia in February
Prince Harry Breaks Down in London Court, Says UK Tabloids Have Made Meghan Markle’s Life ‘Absolute Misery’
Malin + Goetz UK Business Enters Administration, All Stores Close
EU and UK Reject Trump’s Greenland-Linked Tariff Threats and Pledge Unified Response
UK Deepfake Crackdown Puts Intense Pressure on Musk’s Grok AI After Surge in Non-Consensual Explicit Images
Prince Harry Becomes Emotional in London Court, Invokes Memory of Princess Diana in Testimony Against UK Tabloids
UK Inflation Rises Unexpectedly but Interest Rate Cuts Still Seen as Likely
AI vs Work: The Battle Over Who Controls the Future of Labor
Buying an Ally’s Territory: Strategic Genius or Geopolitical Breakdown?
AI Everywhere: Power, Money, War, and the Race to Control the Future
Trump vs the World Order: Disruption Genius or Global Arsonist?
×