Economists have warned that a potential rise in the Bank of England’s interest rates to 6pc could lead to a mild recession in the UK, putting mortgage holders under severe financial pressure due to skyrocketing borrowing costs.
A rise in interest rates could lead to a contraction in the country’s gross domestic product (GDP) by about 0.3pc this year and a further decrease by 1.4pc in 2024, according to a study by Bloomberg Economics. This situation would transpire if the Monetary Policy Committee implements the anticipated rate hikes.
This Thursday, the Bank of England is predicted to raise interest rates to 4.75pc, preceding the release of Wednesday’s inflation data that is likely to indicate high inflation rates.
Money markets are predicting a peak policy rate of 5.75pc by the end of the year, and there is a 50% probability of a further increase to 6pc early next year.
Interest rates of this magnitude would escalate mortgage rates into a range identified by the Bank of England as distressing for households. It would force over a million homeowners to refinance their loans at considerably higher expenses this year.
Bloomberg economist Dan Hanson emphasized:
“One key takeaway from this tightening cycle is not to underestimate the tenacity of inflation.
The Bank of England might consider a considerable economic downturn as a necessary step to prevent inflation mentality in the UK from becoming entrenched.”
