Inflation in the UK might reach 13% as gas prices continue to soar. The warning came from the Bank of England, as it announced interest rates would rise from 1.75% from 1.25%.
In another gloomy prediction, the bank said the country would face its longest recession since the financial crisis.
What’s behind rising inflation in the UK?
Consumer Prices Index inflation will hit 13.3% in October if regulator Ofgem hikes the price cap on energy bills to around £3,450, the Bank’s forecasters said. This would be the highest rate for 42 years when it reached 17.99%. As a counter to the inflation rises of the late 1970s and early 1980s, Margaret Thatcher’s government hiked interest rates up to 17% and slashed public spending. Although it tamed inflation at the time, experts link that action to spiralling unemployment of more than four million in the mid 1980s.
As then, one of the reasons for the rise inflation in the UK now is an energy crisis. A combination of rapidly increasing demand following the Covid lockdowns and the war in Ukraine means that suppliers have increased the price they charge for this commodity.
The Bank of England predicts that this increased energy price will push the UK economy into a five-quarter recession. It expects gross domestic product (GDP) to shrink in each quarter of 2023.
Cost of living crisis
As a result of the biggest hike in interest rates in 27 years, many families will need to make cuts. Those without a fixed mortgage will see their monthly payments increase significantly. The cost of borrowing in other ways, including credit cards and car finance, will also rise. For households already struggling with spiralling bills, the news will come as another blow.
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