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The United Kingdom (UK) is preparing for a recession next year after the Bank of England projected that the economy would shrink for five consecutive quarters.
It was gathered that the economy will first contract in the fourth quarter of 2022, at a period the Bank of England estimates inflation will rise to 13%, from its present level of 9.4%.
According to the governor of the bank, Andrew Bailey, on Thursday, the soaring inflation will push the UK economy into recession in 2023, and to tame the rate, the country would increase the interest rate to raise borrowing cost.
“The main way we can bring inflation down is to increase interest rates. Higher interest rates make it more expensive for people to borrow money and encourage them to save.” Bailey said.
“That means that, overall, they will tend to spend less. If people on the whole spend less on goods and services, prices will tend to rise more slowly. That lowers the rate of inflation.” The Bank of England governor asserted.
Read also: Ekweremadu to remain in custody till Oct 31 as judge adjourns case
The bank disclosed that it plans to bring inflation down to 2% by raising interest from 1.25% to 1.75%, as rising cost of living affects the lives of the citizens. He explained that the increased rate will compel companies will reduce prices, as consumer spending will decline when cost of borrowing hike prices of goods and services.
“I recognise the significant impact this will have and how difficult the cost-of-living challenge will continue to be for many people in the United Kingdom.
“Inflation hits the least well-off hardest. But if we don’t act now to prevent inflation from becoming persistent, the consequences later will be worse and will require larger increases in interest rates.”
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