The British economy will enter a recession in the fourth quarter of 2022 and the downturn will last for the whole of 2023, the country's central bank has warned.
The Bank of England's monetary policy committee announced on Thursday that the U.K. was heading for a recession that would last five quarters—a total of 15 months.
The committee, which sets interest rates in the U.K., voted 8 to 1 in favor of raising them from 1.25 percent to 1.75 percent—the highest single rise in 27 years—as officials warned of economic pain to come.
A 15-month recession would be as long as the U.K. slump caused by the 2008 financial crisis, but it is not expected to be as severe. Bank officials forecast that GDP would fall by 2.1 percent.
"GDP growth in the United Kingdom is slowing," the Bank said. "The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe. The United Kingdom is now projected to enter recession from the fourth quarter of this year."
The Bank expects real household post-tax income "to fall sharply in 2022 and 2023, while consumption growth turns negative."
Officials have also warned that the annualized rate of inflation could be 13 percent or more by the end of the year and would remain high heading into 2023. The Bank remains committed to its target of 2 percent inflation.
U.K. inflation stood at 9.4 percent in June but it is expected to reach 13 percent in the fourth quarter of this year and stay close to 10 percent in 2023.
Unemployment is also expected to rise from 2023 and the Bank of England indicated it could raise interest rates again in the near future.
The bank's governor, Andrew Bailey, told a press conference on Thursday that "the Russian shock is now the largest contributor to UK inflation by some way," but reiterated his support for the 2 percent target.
The grim economic warning comes as the contest to succeed Boris Johnson as leader of the Conservative Party—and prime minister—enters its final weeks. The Conservatives have been in power since 2010.
Party members will choose between Liz Truss, the foreign secretary, and Rishi Sunak, the former chancellor, by early September.
In the U.S., a Harvard CAPS-Harris poll released on Wednesday has found that 84 percent of registered voters believe the American economy is in recession now or will enter recession in the coming year.
U.S. GDP fell in the first two quarters of 2022—a frequently used indicator that an economy is in recession—and the annualized rate of inflation was 9.1 percent in June. However, the economy has continued to add jobs at a brisk pace.
