It is difficult to know quite where to start with the Bank of England’s latest forecast for the economy, or indeed its muscular 0.5 percentage point hike in the interest rate – the biggest jump for many years.
Inflation will peak at 13 or 15 per cent, and stay in double figures at a time when wages for most remain depressed. Energy bills could go anywhere, but probably not down. Unemployment will start to edge up, yet labour shortages will probably remain severe. A recession would be expected to begin by the end of the year and last for the following 12 months. GDP is likely to fall by about 2 per cent, the worst downturn (excluding the Covid-19 pandemic) since the recession of 1990-91. Interest rates will steadily climb, and, after a delay for those on fixed rates, make the mortgage bill even more of a burden. There might be a housing crash, something unknown to anyone below the age of 50. Living standards will be further squeezed. The short to medium-term outlook is “stagflation” – stagnation and inflation – a toxic cocktail.
Politically? In the face of it is not an ideal time to be in government with an election a year or two away. You would expect strikes, protests, civil unrest. People will feel poorer. The voters have already expressed their disenchantment with the Conservative government, and recessions usually mean less money for “levelling up”, the NHS, schools, social care and other essential services, and higher taxes than desirable.
