The Bank of England (BoE) has warned the UK is facing a recession that could be the longest ever in the last 100 years.

The Bank of England (BoE) has warned the UK is facing a recession that could be the longest ever in the last 100 years. The BoE raised interest rates by 0.75% last week to an overall 3%, the highest rate since 1989.

However, the BoE did downplay the expectations of a steep rise in the cost of borrowing, arguing that it will be less aggressive than predicted. Andrew Bailey, the BoE’s governor, said: “We can’t make promises about future interest rates, but based on where we stand today, we think the bank rate will have to go up by less than currently priced in financial markets.” Analysts at Berenberg Bank are forecasting only one more interest rate rise, to 3.5%. The BoE governor and other bank officials also expect inflation to fall to zero by 2025, but before that, it is expected to peak at 11% by the end of 2022. It hit 10.1% in September.

The recession beginning this year is expected to last until the middle of 2024. Unemployment is also expected to rise from 3.5% to 6.5%. The UK is facing a profound cost of living crisis, with energy bills extraordinarily high, inflation hitting food prices and essential goods, an impossible market for renters, and now further increases for homeowners. Those with tracker or variable rate mortgages will be hit immediately with the new interest rate rise. Two-year and five-year fixed rates are at levels not seen since the 2008 crisis but have come down from the 6% level they hit after former Chancellor Kwasi Kwarteng’s mini-budget. An estimated 300,000 people are expected to have to remortgage this month.

Whether inflation and interest rates fall in two years' time is a distant possibility that, for many, makes no difference to their current, immediate reality. With a hard winter ahead, people are being told how to save pennies on their bills by wearing extra layers or switching off appliances. Such menial tips won’t be enough and ignore the lack of government support and intervention to prevent widespread suffering. People are turning to drastic measures, leaving their homes to find public spaces that can provide warmth instead. The BBC has reported that 47 local council-run libraries in Norfolk have become spaces for people seeking warmth and who are unable to heat their own homes. The libraries are also providing free hot drinks and soup. Other libraries across the country are doing the same under the Warm Welcome UK campaign. 2,500 registered organisations have opened or are opening up free, warm, welcoming spaces for the public over this winter across the UK. The current reality is this:

• 16.4 million people will be in fuel poverty this winter, according to the End Fuel Poverty Coalition
• Double the number of households will be in fuel poverty compared to 2020
• There is an estimated £800 gap between the overall cost-of-living and the package for families on means-tested benefits
• 11,400 deaths are caused by cold homes
• 1 in 10 excess winter deaths is attributable to fuel poverty
• £3.6 million is the estimated cost of fuel poverty to the NHS every day

Meanwhile, the government is set to reveal an autumn budget that both increases taxes but decreases public spending. Dubbed “Austerity 2.0”, Chancellor Jeremy Hunt’s November 17th budget is said to be a “belt-tightening statement”. Former PM Liz Truss’ plans were to reduce borrowing by using tax cuts to stimulate the economy, promoting faster growth. But the budget caused a frenzy in financial markets and her time in Downing Street was short-lived. Now, the upcoming budget under PM Rishi Sunak and Chancellor Jeremy Hunt is expected to be focused on reassuring financial markets and reducing government debt as a share of national income, increasing taxes and cutting spending to do so. 

Whilst the government focuses on calming the markets, people are left wondering what will the budget set out in terms of aiding them through the cost of living crisis. The National Grid warned last month that the UK could face forced power cuts if it is unable to import enough electricity and gas this winter. The National Grid has launched a scheme to pay homeowners and businesses to curb their electricity use during high-demand times to prevent such blackouts from happening. People with smart metres in their homes can sign up for the scheme and will be sent an email or text with time slots. During those time slots, if they reduce their electricity use, they can be compensated via money taken off their bills. The scheme is expected to run until March 2023. The National Grid says homes signing up and responding to the alerts could save up to £100 over the winter. 

Fintan Slye, Executive Director of National Grid's Electricity System Operator, said, “[The Scheme] will help mitigate the potential risks ... and will allow consumers to see a financial return for reducing their electricity use at peak times.”

As the recession continues to plunge more and more households into hard times, it is expected that many people will sign up for the scheme as a small lifeline on their energy costs this winter.

(Sources: BBC News, The Guardian, Reuters, Warm Welcome UK)