The Bank of England (BoE) has warned the United Kingdom is facing its longest recession since records began - until mid-2024 - as it lifted interest rates by the most in more than three decades to combat an inflation expected to hit nearly 11 percent.
At a press conference on Thursday, BoE governor Andrew Bailey announced the grim news, warning the UK would face a "very challenging" two-year slump with unemployment almost doubling by 2025.
A recession is a period of temporary economic decline during which a country's economy shrinks for two three-month periods - or quarters - in a row.
He also warned of a "tough road ahead" for British households, saying it had to act forcefully now or things "will be worse later on."
"The sharp increase in energy prices caused by Russia's invasion of Ukraine has made us poorer as a nation. The level of economic activity is likely to be flat and even fall for some time," Bailey said, as the BoE lifted interest rates to three percent from 2.25 percent, the biggest jump since 1989.
He also said the BoE was raising borrowing costs by 0.75 percentage points to three percent - the highest since the 2008 global financial crisis - in an attempt to bring down UK inflation that it sees shortly peaking at a four-decade high 10.9 percent.
The rate hike is set to deteriorate a cost-of-living crisis for millions of people in the UK as increases by central banks see retail lenders raise interest rates on their own loans.
Former Prime Minister Liz Truss spooked the market by her budget plan, a move that forced her to step down, triggering emergency buying of UK government bonds by the BoE.
Now, incumbent Prime Minister Rishi Sunak tries to bring calm to markets by hinting at tax hikes in a fresh budget on November 17.
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