// UK economy will fall into recession this year, Bank of England warns
// Interest rates were raised to their highest point in 27 years
The Bank of England has warned that the UK economy will crash into a recession by the end of this year after interest rates were raised to their highest point in almost 30 years.
It expects the UK economy to shrink in the final three months of the year and would continue shrinking until at least the end of 2023 – the longest recession since the 2008 financial crisis.
It made the prediction on the same day it increased interest rates from 1.25% to 1.75% – their highest point since 1995 – in a bid to tackle soaring inflation.
READ MORE: Shop prices rise to their highest level ever as inflation bites
The Bank of England blamed the increase on Russia’s invasion of Ukraine, which has pushed the cost of energy to three times what it was in 2021, leading to more inflation.
Inflation is expected to peak at 13% at some point later this year – a 42-year high.
The Bank of England governor Andrew Bailey said the impact of the cost-of-living crisis would disproportionately affect the poorest households.
“It will get worse precisely, I’m afraid, for those who are least well-off in society,” he said.
“So, while I have huge sympathy and huge understanding for those who are struggling most with this – and I know that they will feel: ‘Well, why have you raised interest rates today?
“Doesn’t that make it worse from that perspective in terms of consumption?’ – I’m afraid my answer to that is: it doesn’t because I’m afraid the alternative is even worse in terms of persistent inflation.”
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