Policymakers raised the Bank’s base interest rate from 1.25% to 1.75% – the biggest hike since 1995 – as they tried to control runaway inflation.
The decision means UK interest rates are now at the highest level since January 2009. This is the sixth rate hike since December.
Alcohol-related deaths in Scotland hit highest level since 2008
The UK will enter five consecutive quarters of recession with gross domestic product down 2.1%, the Bank said.
This will increase borrowing costs for millions of people, including those with adjustable rate mortgages.
Consumer price index inflation will hit 13.3% in October, the highest in over 42 years, if regulator Ofgem raises the price cap on energy bills to around £3,450, Bank forecasters said.
Energy prices will drag the economy into a five-quarter recession, with gross domestic product (GDP) shrinking every quarter in 2023.
“Growth thereafter is very weak by historical standards,” the Bank said on Thursday.
The dire economic conditions will see real household incomes fall for two consecutive years, the first time this has happened since records began in the 1960s. They will fall 1.5% this year and 2.25% next year. next year.
However, the recession will be at least shallower than the crash of 2008, with GDP falling as much as 2.1% from its peak.
Bank officials said the depth of the decline is more comparable to the recession of the early 1990s.
Myles Fitts, financial health spokesperson for Citizens Advice Scotland, said: “So many households in Scotland are already struggling to make ends meet. With energy bills, gas costs and other payments higher than ever while wages stagnate, CABs are seeing a growing number of people who are simply unable to cope.
“The current rise in interest rates will hit these people hard, making it even more difficult for them to cover their daily living expenses. Governments must recognize the scale of the crisis and make more support available to those struggling.
“In the meantime, anyone needing help with their finances can get free, confidential and unbiased advice from their local CAB or our self-help tool. www.moneymap.scot.”
As the hospitality sector continues to face a slow recovery from the pandemic and recent challenges presented by the cost of living crisis, the Scottish Licensed Trade Association (SLTA) has warned that rising interest rates could be too large for some small businesses. bear.
Colin Wilkinson, chief executive of the SLTA, said: “The last thing businesses need right now is for the Bank of England to raise the interest rate to its highest level since December 2008. Businesses are feeling the pinch. pressure since the pandemic hit two and a half years ago and are already struggling with repaying debts incurred during Covid. This could be the straw that broke the camel’s back. “Many companies have also incurred additional costs in finding staff who left the hospitality industry during the pandemic and because of Brexit, while those who started to pick up their pace over the summer saw their efforts thwarted by the ongoing strikes.
“At a time when the Scottish hospitality industry is expected to be optimistic with the ongoing festival season and warm sunny weather encouraging people to get out and about again, the mood is decidedly pessimistic as business owners speculate on the next hurdles to recovery will be.”
Mr Wilkinson called on the next prime minister to adopt a ‘business first’ agenda to take a ‘precise focus’ on the economy to protect businesses and jobs and boost economic growth.
Andrew McRae, policy chair of the Federation of Small Businesses for Scotland, said ‘policymakers’ must give small businesses some slack and take ‘long overdue’ action on energy bills, to give businesses in the neighborhood some of the protections afforded to households.
Anas Sarwar, Scottish Labor leader, called the rise a “national emergency”, adding: “People are already struggling and it will get worse. The response of our governments must match the scale of the crisis.
Regulator Ofgem announced the energy price cap would be updated quarterly, rather than every six months, warning customers are facing a “very difficult winter”. The changes are designed in such a way that any drop in wholesale prices is fully passed on. to customers and more quickly, however, it also means that consumers are less protected against short-term price increases. Conor Forbes, director of policy at Advice Direct Scotland, said: – and we can expect further rises in January. “The key advice to everyone in Scotland is not to struggle alone.” Our experts at energyadvice.scot are available to provide free advice on support and assistance available, such as grants, and we can also ensure that Scots claim all the benefits to which they are entitled by using our advice tool. free verification on www.advice.scot.