Economists warn that the Bank of England’s aggressive fight against the highest inflation among G7 economies may plunge the UK into a recession by year-end.
Bloomberg Economics predicts a year-long recession for the UK starting from the last quarter, assuming the Bank of England increases interest rates to 5.75% by November. Their projection indicates a mere 0.1% growth for the UK economy this year and a 1% contraction in 2024, a significant downward adjustment from the previously estimated 0.3% growth.
Nonetheless, expectations are nearly set in the money markets that interest rates will hit 6.25% by December. This rise is an attempt to curb inflation, which was at 8.7% in May, consequently indicating a potentially greater economic downturn.
Economists Dan Hanson and Ana Andrade express their concern, suggesting the risk of the data remaining unaffected by the Bank of England’s measures, leading to an even greater hike in interest rates.
They add, “As borrowing costs exceed 5%, we believe the likelihood of a financial stability shock increases dramatically.”
