As the government strives to control inflation through interest rate hikes, we risk the UK economy falling into recession.
Last July interest rates were at 1.25% and inflation was surging. Just under a year later, inflation remains stuck at 8.75% with core inflation rising. In response the Bank of England has increased interest rates for the 13th time in a row to 5%, despite fears of recession and a meltdown in the mortgage market. The Bank of England’s Monetary Policy Committee had been widely predicted to opt for a 0.25% percentage change, but the clear message of the 50 basis point increase in the interest rate is that combatting inflation will be prioritised over keeping the economy growing.
With markets already assuming the headline rate will reach 6% by Christmas, the risk of a recession is increasing and whilst this may well reduce inflation, the consequent increase in insolvencies is likely to include some well established businesses that nobody expects to fail.