Britain faces years of economic stagnation due to high interest rates

2023-07-24 18:10:00
Britain faces years of economic stagnation due to high interest rates

Britain is facing a prolonged economic slump caused by higher interest rates, economists have warned, with the battle against inflation set to weigh on growth for years to come.

EY Item Club, the only private sector forecaster to use the same model as the Treasury, has slashed its forecast for growth in 2024 and 2025 as it said rates were now on track to be higher for longer.

In its latest quarterly update, the group said the UK economy is set to grow by 0.8pc next year, less than half its previous prediction of 1.9pc.

GDP growth will rise to 1.7pc in 2025, the economists said, down from their previous forecast of 2.3pc.

Martin Beck, chief economic adviser to the EY Item Club, said: “You have got this much bigger rise in interest rates than we were expecting, and that takes time to hit the economy, because of fixed-rate mortgages. It will hit harder next year than this.

“The Bank [of England]’s hawkishness is going to condemn the economy to sluggish growth, even though inflation is probably going to come down quickly of its own accord.”

The Bank has so far raised interest rates from 0.1pc in December 2021 to 5pc and is expected to go further in the coming months.

Other drivers of inflation are also fading as supply chains have recovered from the disruption caused by the pandemic.

Source: The Telegraph


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