Interest rate rises to hit UK growth next year, but recession unlikely

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Rising interest rates are set to slow the UK economy next year, casting a pall over the country in a likely election year.

Article originally published by The Guardian. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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24 Jul 2023

The EY Item Club, the economic forecasting group, has halved its forecast for UK economic growth in 2024 to 0.8%, down from the 1.9% projected in April.

The 2025 GDP growth forecast has also been downgraded, from 2.3% to 1.7%.

These growth downgrades are due to the increase in UK interest rate over the last 20 months, from 0.1% in December 2021 to 5% today.

EY ITEM Club predict two further interest rate rises from the Bank of England, in August and September, meaning Bank Rate peaks at 5.5%.

That will further slow growth, and put more pressure on mortgage holders, with over one million households across Britain are expected to lose at least 20% of their disposable incomes to surging mortgage costs.

Martin Beck, chief economic advisor to the EY ITEM Club, says:

“The inflation and interest rate outlook is a key risk for the forecast. Should inflation prove more stubborn than expected, the prospect of even more rate