Bank predicts 5 quarters of recession

The Bank of England sees inflation staying above 10% for the next year or so, a recession as deep as what the UK experienced in the early 90s and a significant two year fall in household incomes. We have a contracting economy with continued high inflation and higher interest costs. The forecasts are for a much worse recession than was previously envisaged. We will all feel this. The outlook for the UK is grim and possibly worse than many other developed countries. There will need to be Government action to help the worse off either in the form of rebates , higher benefits or some other fiscal action The New Prime Minister will need to take decisive measures quickly to stop the Bank of England predictions from coming true . .

Thursday saw a near apocalyptic verdict on the economy from the Bank of England. 200,000 Conservative Members will now decide the direction of 67m people. Is it Austerity Plus with Rishi Sunak or spending our way out of a recession with Liz Truss?

These are absolutely shocking predictions from the Bank of England and, if they prove true, will create massive financial issues for huge swathes of people across all sections of the population. The UK economy is officially on red alert and there is sadly a lot of pain in the pipeline for potentially millions of people.

The Bank of England is putting forward a self-defeating argument. The main driver of inflation is energy prices over which it has no control, but to counter that it makes a massive increase in interest rates. They then predict recession for five quarters. And yet we have a labour market where there are more vacancies than there are people with the requisite skills available. Couple that with the uncertainties produced by Ukraine and Taiwan, the expected energy price rises in October and January, and now with increased mortgage costs for many as well, we are looking at a terrifyingly bleak couple of years ahead. It would be good if both candidates for Prime Minister were to address this, rather than present the usual smoke and mirrors that everything is fine, that we don't have economic issues and no one needs to worry because we have a tax surplus. All most of us can do is tighten our belts, cut our discretionary spend and hope we can ride out the storm.

Andrew Bailey's arrogance in the press conference was staggering. He basically said the Bank has not failed with its mandate over 25 years. The Bank of England wrote us off into a recession on Thursday but for how long and how severe is anyone's guess. Also the 13% inflation prediction is based on a lower price cap than is currently anticipated so I think it will be higher than 13%. Buckle up.

Right now a good number of people are choosing whether to heat or eat. Come October energy prices will rise by around 70% again. Putting up interest rates works when people are spending too much money. Right now that is not the case. In macroeconomic terms, there may be justification for raising rates, but in the microeconomics of household finances, it could prove nothing short of a disaster.

It's a dire situation and the brutal honesty of the outlook will also dampen some of the naive optimism that had people thinking if they just got their heads down, it would all be okay. Having built a business during a recession, we are lucky to be lean and agile but it's still biting us in ways we cannot control. Our clients are also impacted, one commenting that it feels like a rollercoaster, the government has the controls, but they've lost them, and now it's on a never-ending spiral downwards. My biggest concern is the psychological impact on individuals knowing that everything is going up, but there will be increased instability due to the recession, as lack of control with increased instability will feel like a crisis to some people.

Placing further financial strain on businesses will cause widespread damage to the UK economy. Many firms are already at breaking point, unable to manage the everyday expenditure of running a business - from paying employees, to suppliers and HMRC. The outlook is really worrying if more support isn't provided soon. Economic growth slows as GDP shrinks, making the looming recession a self-fulfilling prophecy. Businesses require action and assistance.

Hiking interest rates while predicting a significant recession is a very unusual position for any central bank to find itself in. It poses the question that, once inflation has been brought under control, will the Bank of England end up cutting interest rates next year as fast as they've increased them this year?

In spite of what is being said by public figures about wage growth driving inflation, most of our inflation is imported, and imported at US Dollar rates. Increasing interest rates sharply now, whilst damaging for those with mortgages and other debts, is unfortunately necessary to try to turn around the sharp decline in real value of Sterling in the world markets. This in turn will reduce inflation. Businesses with large fixed overheads will struggle in the coming months and we anticipate seeing more and more companies struggle to pay suppliers. Once the dominoes start falling it is hard to see where they will stop. Employment levels will be critical in the coming months. If they stay high we may still ride this storm; but if they start to fall we could see a rapidly increasing spiral of problems as forecast by Threadneedle Street.

I am like a stuck record; the future is going to be challenging across the world. Everything is building for the waves to start to hit in the Autumn and for most of us we should be preparing to hunker-down for a bleak Winter at least. Hospitality and retail are already seeing a down-turn. Construction is going to have issues as their supply costs will wipe out any profit. Small businesses that make little noise when they fall in the forest will be hit first. Being a mortgage adviser means that we will see a shift away from purchases towards remortgages for rate protection, home improvements and debt consolidation. If the market drops too far too fast we will be focusing on asset protection and loss limitation, but hopefully it won't come to that.

There is no such thing as a free lunch and it's time to pay for all the measures taken to tackle Covid in 2020-21. You simply cannot lock down the world economy, print trillions of dollars/pounds and hand out billions in grants without consequences. Then add into the mix the war in Ukraine and you have the perfect storm of soaring inflation, eye watering energy prices and a massive fall in consumer spending power. Make no mistake, we are in for a very difficult 1-2 years and this could even spark further conflicts around the world.

The main driver of the cost of living crisis is the continued increase in wholesale energy prices driving inflation, which is intrinsically linked to the security of our energy supply and that our homes leak energy like a sieve. As a property tech business, we feel well placed to help people as this crisis deepens over the coming months and head into recession; from helping people make decisions about more efficient homes, to finding the best deals for their mortgage.