Rishi Sunak warned over possible UK recession in 2024 –
Rishi Sunak has been warned the UK economy could be in recession next year as stubbornly high inflation pushes interest rates to more than 5% before the next general election.
Setting the stage for a further rise in borrowing costs on mortgages and loans for millions of households, economists predicted the Bank of England could be forced to drive Britain’s economy into a recession to tame inflation.
At the end of a week of troubling economic developments, the chancellor, Jeremy Hunt, was being roundly criticised for appearing to say he thought this was a price worth paying, despite the pain already caused to families by an unrelenting cost of living crisis.
Keir Starmer, the Labour leader, said: “Almost nobody feels better off after 13 years of this government. I’m really worried about mortgages. People are struggling to pay the bills. Mortgages are a big part of that.”
Jagjit Chadha, the director of the National Institute of Economic and Social Research, said that if interest rates continue to rise, “we’re in danger of engineering a recession”.
As financial markets drove up UK government borrowing costs to the highest level since Liz Truss’s ill-fated premiership, the prime minister’s ability to deliver on his promise to halve inflation this year, one of five central pledges of his premiership, came into question.
Andrew Sentance, a former policymaker at the Bank of England, suggested Sunak’s promise was a “mistake” because it has been the central bank’s responsibility since it was handed independence by Gordon Brown in 1997.
“I would say if you believe the Clinton mantra that ‘It’s the economy, stupid’ – which I think is quite correct for the UK, and if the opposition looks competent – then it’s going to be quite a sticky wicket for the government economically next year,” he said. “The public can’t sack the governor of the Bank, so they express their dissatisfaction with the government.”
Official figures this week showed that the UK’s annual inflation rate fell by less than expected to 8.7% in April, with a steadying in energy prices largely offset by the soaring price of food.
Financial markets are now betting that the Bank will drive up its key base rate to as high as 5.5% from the current level of 4.5% before the end of the year.
Virgin Money became the latest big lender to increase its mortgage rates on Friday, with the cost of its fixed-rate deals edging higher. On Thursday, Britain’s biggest building society, Nationwide, hiked rates by up to 0.45 percentage points for those taking out a new mortgage.
After Wednesday’s disappointing inflation figures caused turbulence in the money markets, financial data firm Moneyfacts said 38 mortgage products had been withdrawn, and experts warned borrowers to brace for 5%-plus fixed-rate deals.
David Gauke, a former Conservative chief secretary to the Treasury, said the Conservatives’ best chance at the next election would come if living standards were improving and if interest rates were falling.
“The economy has performed better than expected so far in 2023, but if this means that inflation is going to be sticky and the Bank still has to go further to combat inflation, the economic pain is going to be badly timed for the government.”