The UK economy is facing the longest, if not the deepest, recession since modern macroeconomic statistics began around a hundred years ago.

The Bank of England forecasts gross domestic product (GDP) to shrink steadily for two years from mid-2022 to mid-2024.

The central bank warned of this when it raised the key interest rate to 3 percent last week to combat inflation.

A two-year recession would be longer than previously feared, the main reasons being the rapid increase in energy prices and inflation, to which the Bank of England has now reacted with eight interest rate hikes.

Philip Pickert

Business correspondent based in London.

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According to the central bank, the British economy has been in recession since the summer.

The British Chamber of Commerce and Industry (BCC) lamented an "alarming deterioration in economic sentiment and conditions over the weekend, with key indicators falling back to Covid crisis levels".

The Bank of England predicts a GDP drop of 1.9 percent for 2023, and another slight contraction in GDP of 0.1 percent on average in 2024.

In the eight quarters of the recession, the economy will have shrunk by 2.9 percent overall, according to the forecast.

This means that the slump is half as severe as during the financial and banking crisis fourteen years ago.

The Bank of England expects the economy to recover “only gradually” after mid-2024.

"Double Toxic Shock"

Treasury Secretary Jeremy Hunt spoke of very difficult times.

The economy experienced a “double toxic shock” in quick succession, first the Corona slump and then the effects of the Ukraine war.

He described inflation, which has soared to more than 10 percent, as "the enemy weighing heavily on families, pensioners and businesses."

Hunt is currently faced with the difficult task of filling a hole of up to £50billion in his budget.

This will also happen through tax increases.

According to media reports, not only a higher tax on special profits for energy companies is planned, but also an expanded taxation of dividends.

This would then also affect private households.

Some sectors fear a particularly deep slump in the looming recession.

The hospitality and hotel association UK Hospitality has already warned that a third of pubs, restaurants and hotels could face bankruptcy next year.

In a survey, 35 percent of the member companies answered that they were making a loss or that their survival was questionable.

"The rapidly increasing energy costs and costs for other goods as well as the declining consumer confidence are extremely painful for the sector," warns the catering industry.

Construction industry badly affected

The construction industry also has deep concerns, expecting a slump in the real estate market and in new construction activity due to rising interest rates.

The CPA association expects the output of the construction industry to fall by around 4 percent next year.

Noble Francis, the chief economist of the construction industry association, sees this on the way to a clear recession.

"But one should not forget that construction activity is currently at an all-time high," he adds.

However, the costs are currently increasing by double-digit percentages, which is hitting the industry hard.

Observers are now expecting a significant correction for the real estate market after prices had risen sharply for years, including during the Corona period.

The Lloyds banking group, which also owns Bank Halifax, which is very active in the mortgage business, predicts that prices will fall by 8 percent next year and then stagnate for several years.

So far, the unemployment statistics have looked comparatively good.

Currently, only 3.5 percent of the island's labor force is unemployed.

This is the lowest level since the mid-1970s.

According to the Bank of England forecast, the unemployment rate will rise to 6.5 percent during the recession.