UK to enter year-long recession as inflation soars past 13pc

Interest rates help tame inflation by raising the cost of borrowing throughout the economy.

This encourages households and businesses to save more and spend less – helping to dampen aggregate demand for goods and services.

However, the bank stressed that while many banks have passed rate increases on to people looking for new mortgages, savings rates have not kept pace. It highlighted that the average instant access account has risen just 0.3 percentage points since last November, even as the bank rate has risen almost fourfold.

A bank survey of UK businesses revealed the challenges facing households this year.

Supermarkets said customers have already traded to cheaper brands or opted for discounters like Lidl and Aldi.

Households were also more likely to repair items than replace them, while many had stopped buying expensive items such as cars, refrigerators and televisions.

Others had postponed visits to the dentist or canceled subscription services.

While holidays remain a priority for many families who have been unable to escape due to the lockdown, many have opted for budget hotels or reduced day trips to save on fuel.

The bank also announced it would start selling its £863 billion stash of government debt it had amassed during the pandemic and financial crisis.

It plans to reduce quantitative easing (QE) build-up by £80bn next year, starting this autumn. Despite the economic uncertainty, it said there will be a “high bar” to change those plans. UK to enter year-long recession as inflation soars past 13pc

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