The Bank of England has raised interest rates for the tenth time in a row adding further pressure to mortgage borrowers.
Decision makers on the Bank’s Monetary Policy Committee (MPC) opted to hike the base rate from 3.5% to 4%, to help bring down double-digit inflation.
The Bank said that the UK is still headed for a recession – but stressed that the economic downturn could be shallower and shorter than previously expected.
Wholesale energy prices have fallen significantly since the MPC produced its last forecast, in November, and inflation has begun to fall from its peak last year.
The UK will suffer a recession of five consecutive quarters, starting in the first three months of 2023.
But the decline will be much softer than in previous recessions, such as during the 2008 financial crisis. A recession is defined as at least two consecutive quarters of falling output.
GDP is expected to fall by 0.5% over 2023, and by 0.25% in 2024, before picking up to almost 1% by 2025.
The outlook for the labour market has also improved, the MPC said.
The number of job vacancies is set to decline, and redundancies will remain low, as companies are less inclined to let staff go as quickly as they did in previous recessions, the Bank suggested.
The rate of unemployment is expected to peak at 5.25%, lower than the 6.5% that was previously forecast.
A lower rate of unemployment and therefore greater job security indicates that people have more confidence to spend.
[tptn_list limit=3 daily=1 hour_range=1]