The UK is on the brink of recession by the time of next year's general election. Photo: Frank Augstein/AP
Britain risks collapse Leading economists warn that a recession as interest rates rise puts a lot of pressure on families and businesses that have already recovered from runaway inflation.
The National Institute of Economics and Social Research (NIESR) stated that the probability of the fall of the UK is 60%. into a recession at the end of 2024, blaming inflation, interest rates and sluggish global growth.
Institute director Jagjit Chadha said the “British disease” was back, referring to a term popularized in the 1970s when the UK experienced prolonged stagnation.
He said: “Inflation, political instability, the global economic downturn, oil shocks, strikes – there are a lot of nouns that resonate with the 1970s.”
“The British economy doesn't look like it will substantially surpass pre-Covid peak activity over the forecast horizon [until 2027].”The risk of recession next year rises as high interest rates put pressure on households and businesses. The Bank of England cut interest rates from 0.1 percent in December 2021 to 5.25 percent today.
A household with a £300,000 mortgage that remortgaged last year will see monthly payments jump from £1,200 per month to £1,800 per month, NIESR estimates, an increase of 50 per cent.
0308 Bank rate reaches 5.25
1.2. m families will run out of savings as a result of higher mortgage payments this fiscal year, the organization said, bringing the total number of families without extra money to 7.8 million, or more than a quarter of all households.
According to NIESR, house prices are expected to fall for three years in a row, while the Bank of England will struggle to control price increases for several years.
GDP will grow by an anemic 0, 4. pc this year and 0.3 pc next, according to the NIESR report.
This means the country is on track for five lost years as GDP will not return to its pre-crisis size until the third quarter of next year, and will struggle to achieve significant growth even beyond that point. The group said a recession could not be ruled out this year.
The warning comes as the global economy worsens. Bond yields tumbled and stocks sold off on Tuesday amid worries about the health of the Chinese economy and the US banking system.
Both imports and exports of China unexpectedly fell sharply in July, heightening concerns about the health of the world's second largest economy.
At the same time, Moody's rating agency downgraded 10 small and medium-sized US banks .
The FTSE 100 fell 0.5%, while the US S& P 500 dropped 1pc. A stronger dollar sent the pound down 0.4% to $1.27.
NIESR's Stephen Millard warned that there is a serious risk of a US recession.
Excessively high interest rates, persistent inflation and further damage from the war in Ukraine mean that “we will not see the pace of global growth.” in GDP, which we have done over the last 20 or so years,” he said, warning of a “long-term, structural” hit to growth.
CPI inflation rate (forecast)
NIESR predicts the global economy will grow by 2.7% this year, 2.8% in 2024 and 2.9% on average each year through the end of the decade, marking the weakest years of the sluggish recovery since the financial crisis.
Even against this bad global picture, Britain will lag behind. NIESR expects that the economy will grow more slowly than in the eurozone, the US and Japan.
Inflation is the key problem. NIESR predicts price growth of 7.7% on average this year and 4.1% in 2024. He does not expect inflation to return to the Bank of England's 2% target over the next five years.
Inflation has taken its toll £4,000.
The prices of basic necessities have risen especially sharply since the pandemic and the war.
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NIESR reports that 1.6 million low-income households are in high-interest debt , which are sometimes used to pay for basic necessities, including food, utilities, and rent. These families spend an average of £3,200 a year or £267 a month to pay off their debts.
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