The United Kingdom (UK) is bracing for a recession next year, with the Bank of England predicting that the economy will contract for five consecutive quarters.
The economy is expected to contract for the first time in the fourth quarter of 2022, when the Bank of England expects inflation to rise to 13% from its current level of 9.4%.
According to the bank’s governor, Andrew Bailey, on Thursday, rising inflation will push the UK economy into recession in 2023, and the country will raise interest rates to raise borrowing costs to tame the rate.
“The primary way we can reduce inflation is to raise interest rates.” Higher interest rates make borrowing money more expensive and encourages people to save.” said Bailey.
“This means that they will spend less overall.” Prices tend to rise more slowly when people spend less on goods and services overall. This reduces the rate of inflation.” The governor of the Bank of England stated.
The bank stated that it intends to reduce inflation to 2% by raising interest rates from 1.25 percent to 1.75 percent, as rising living costs have an impact on citizens’ lives. He explained that the increased rate will compel companies to reduce prices, as consumer spending will fall when borrowing costs rise and prices of goods and services rise.
“I recognize the significant impact this will have, as well as how difficult the cost-of-living challenge will remain for many people in the UK.”
“Inflation disproportionately affects the poor.” However, if we do not act now to prevent persistent inflation, the consequences will be worse and will necessitate larger interest rate increases.”