Stormy times ahead as UK faces LONGEST recession ever

The double blow came as Bank chiefs said the UK faced a ‘very challenging’ two-year slump with unemployment nearly doubling by 2025. The Bank of England had previously expected the UK to fall into recession at the end of this year and said it would last for all of next year.But it now believes the economy already entered a ‘challenging’ downturn this summer, which will continue next year and into the first half of 2024 – a possible general election year.While it will not be the UK’s deepest downturn, it will be the longest since records began in the 1920s, the Bank said.The grim analysis came as homeowners face the biggest single shock to their mortgage bills in 30 years with interest rates rising by 0.75 percent.The eighth consecutive rise left the Bank’s base rate at three percent – its highest for 14 years.It will push up mortgage payments by around £73 per month for typical households according to data from trade body UK Finance.It brings the total of recent hikes to more than £3,000 a year.This will also hit the approximately 1.8 million households whose mortgages are up for renewal next year.Interest rates are now the highest they have been since the global financial crisis of 2008 after the 7-2 decision by the MPC as they seek to battle double-digit inflation.And there were warnings of likely further rises in the base rate towards a level as high as five percent.By 2025, unemployment will have leapt from 3.5 percent now to 6.5 percent, minutes of the MPC meeting revealed. The eighth consecutive rise left the Bank’s base rate at three percent – its highest for 14 years (Image: Getty)The Bank’s Governor Andrew Bailey said: ‘The road ahead will be a tough one.’Eight rate rises since last December are big changes and they have a real impact on people’s lives.’But if we do not act forcefully now, it will be worse later on.’Although most mortgage payers are on fixed-rate deals, just over two million households are due to refinance their mortgage before the end of next year.Eighty percent of these borrowers are currently paying rates of less than 2.5 percent.But a homeowner with the typical outstanding balances of £130,000 now faces paying an extra £3,000 a year if their mortgage deal goes up by 3.5 percentage points.Those on a Bank of England tracker deal will see an immediate £73.49 monthly increase – or around an extra £880 per year.More expensive mortgage payments make a fall in property prices inevitable, say experts.Chris Rhodes, chief finance officer at Nationwide Building Society, told the Commons Treasury committee: ‘My best case is slowly increasing house prices and my worst case is potentially a 30 percent fall.’House prices fell by 0.9 percent month-on-month for the first time in 15 months in October and the sharpest drop since the start of the pandemic, he added.Estate agents Savills predicted a drop of 10 percent in value next year.Karen Noye, mortgage expert at Quilter: ‘Anyone coming to the end of a longer fixed rate deal will be shocked by how much their monthly payments will now be in this new interest rate environment.’These extra costs on top of food and energy prices rises may add up to a winter of discontent for many.’This could cause a wave of people to opt to try and sell their home to opt for something smaller.’If lots try to do this at the same time, the laws of supply and demand dictate that house prices will drop as stock mounts on the market but demand dries up.’Stuart Collar-Brown, founder and director, My Auction, added: ‘First time buyers, second steppers, downsizers and investors – by increasing the interest rate by so much the Bank of England is pricing everyone out of the market.’We’re at the start of a recession, which some predict will go on longer than we have ever seen before, and all today’s rise does is stop the economy moving.’This increase could grind the residential market to a halt. We could have a real disaster on our hands.’ The road ahead will be a tough one, said Andrew Bailey (Image: Getty)Savers hoping for more generous returns on their nest eggs to mitigate any pressure on family finances may be disappointed.Jenny Holt, of Standard Life, said: ‘Raising interest rates is good news for savers, but the increase in interest payments on cash savings is a long way off bridging the gap created by high rates of inflation.’Our analysis shows that even with an interest rate of three percent, higher than what is currently available on almost all easy access savings accounts, savings of £10,000 will be reduced to around £8,500 in real terms after two years if inflation remains at 10 percent.’These figures highlight the importance of ensuring your savings are working as hard as possible for you.’If your savings are earning just one percent interest then the real value after two years is around £8,260, a difference of £240.’The MPC announced the rate rise amid signs of ‘greater persistence’ of price pressures.Pay demands continued to rise, averaging between five and seven percent, up from around five percent three months ago as workers demand higher salaries due to increases in the cost of living.The MPC has also not factored in the impact of forthcoming tax rises and spending cuts, which will be announced by Chancellor Jeremy Hunt in the Autumn Statement on November 17.If speculation of a £50bn austerity package of cuts is correct, that is likely to exert a significant drag on growth.Mr Hunt admitted that the move would be ‘very tough for families with mortgages up and down the country’.But he said it was necessary to act now and avoid tougher measures in the future.’The best thing the Government can do, if we want to bring down these rises in interest rates, is to show we are bringing down our debt,’ he told broadcasters.’Families up and down the country have to balance their accounts at home and we must do the same as a government.’There was a glimmer of good news among the gloom, however.Governor Bailey suggested that the base interest rate may now peak lower than predicted – analysts believe possibly below five percent.This means that the cost of fixed-rate mortgages, which has soared to north of six percent, could start to fall, helping those about to re-mortgage.Families and businesses will face ‘very tough’ times as mortgage and loan costs soar due to ballooning interest rates, Jeremy Hunt has warned, writes Martyn Brown, Daily Express Deputy Political Editor.The Chancellor said there were ‘no easy options’ for the Government as it battles to get the national finances back under control. Mr Hunt insisted he was clearing up the economic mess left by the Liz Truss mini-budget fiasco.He said he and new Prime Minister Rishi Sunak would ‘fix’ the issues caused by Ms Truss and former chancellor Kwasi Kwarteng in September’s financial statement. Mr Hunt’s own highly anticipated Autumn Statement on November 17 will detail plans for tax rises and spending cuts as the government attempts to fill a ‘black hole’ in public finances.The Chancellor’s remarks came after the Bank of England hiked interest rates by 0.75 percent, the highest for 14 years, and warned of a prolonged recession.Bank governor Andrew Bailey said Ms Truss’s economic policies would have a long-lasting impact, pushing up borrowing costs. Asked whether Tory incompetence was to blame for the country’s economic problems, Mr Hunt said: ‘What my party has done is put in place a new Prime Minister.’We also have a new Chancellor of the Exchequer.’Mr Hunt said the PM recognised the problem when he entered Downing Street and said ‘he was there to fix that’ while the Chancellor said he had reversed the measures in the mini-budget within days of entering No 11.Mr Bailey said the Trussonomics policies of borrowing to fund tax cuts, on top of a massive spending commitment to control energy bills, would have a lasting impact on the UK’s credibility. The Chancellor said there were ‘no easy options’ for the Government (Image: Getty)’There has been a questioning of UK policy,’ he said. ‘That will have some lasting effect and we have to work very hard to put that in the past, frankly.’He added: ‘There has been a UK premium on rates. If you look at how UK rates have moved since we were here at the beginning of August compared to the euro area and the US, they’ve all gone up, but the UK clearly went up far more, and it went up during this period when there was considerable turmoil in the markets.’The increase in interest rates will pile around £3,000 per year on mortgage bills for households set to renew their home loans.Mr Hunt said: ‘Today’s news is going to be very tough for families with mortgages up and down the country, for businesses with loans.’But there is a global economic crisis, the International Monetary Fund says a third of the world’s economy is now in recession.’Families up and down the country have to balance their accounts at home and we must do the same as a government Speaking to reporters in Carshalton, south London, he said: ‘The best thing the Government can do if we want to bring down these rises in interest rates is to show that we are bringing down our debt.’Families up and down the country have to balance their accounts at home and we must do the same as a government.’The Chancellor is expected to set out a package of tax rises and spending cuts in his November 17 autumn statement.’Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth.’However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.’Responding to the news from the Bank on Thursday, a No 10 spokeswoman said: ‘The Prime Minister recognises that this will be a worrying and difficult time for people, families and businesses across the UK.’The number one priority for his Government is bringing down inflation. There will be some difficult choices, but we will ensure that we are actually fairly, protecting the most vulnerable and continuing to seek long-term growth.’What is happening where you live? Find out by adding your postcode or visit InYourArea