Andrew Bailey warns of “tough road ahead” for UK households

The Bank of England today raised interest rates by 0.75% to 3.0%. That’s the biggest rise since 1989. The BoE adds that the UK is already in a recession that started in the third quarter. They expect the recession to last until mid-2024 at the earliest


As well as the long recession since records began, they also expect unemployment to rise from the current 3.5% to around 6.5% by the end of 2025.


As if all that isn’t bad enough, they expect inflation to remain over 10% in the near term. They expect it to peak at 11% later this year.


Salaries in the UK are growing at around 5.5% a year. That means that the average worker is around 4.5% worse off in real terms compared to a year ago. Add a minimum of a 2-year recession to that and this will be the worse cost-of-living crisis that most people have seen in their lifetimes.

A brutal few years ahead

The next 2–3 years will be pretty brutal for many people, especially for those that are already struggling. Even though inflation is currently 10.1%, food and energy inflation is much higher. As poorer people spend a larger proportion of their income on those items, it will hit them very hard.


James Smith, research director at the Resolution Foundation, says that

“Despite the Bank clearly signaling that rates will not go as high as financial markets have been expecting, further rate rises are still coming, with over five million households set to see their monthly mortgage bills increase sharply over the next two years, by an average of around £3,900.”

If interest rates hit 5%, as many expect, that would increase the payments on a typical variable-rate mortgage by around £500. Around 2.5 million UK households have these mortgages.

The biggest economic shock since the 1970s

Andrew Bailey added that the huge shock to the economy created by the war in Ukraine and other factors is worse than in the 1970s.

UK Property Market

Savills are today predicting that UK property prices will fall by around 10% in 2023. As the recession is expected to last until at least mid-2024 and unemployment is expected to keep rising until the end of 2025, I expect property prices to continue falling in 2024 and 2025.

Savills are also predicting that property sales will drop to a mere 870,000 next year. In 2021, there were 1.5 million transactions. This year’s figure is expected to be 1.2 million.

Earlier this week, Nationwide, the UK’s largest mortgage lender, reported that property prices fell 0.9% in October. Winter is a slow time for property sales, so I expect prices to fall faster over the coming months.

The forecast of 10% price declines from Savills seems overly optimistic. Interest rates are expected to rise again next month and again in early 2023.

Given increasing interest rates, high inflation, low pay growth, the longest recession ever, and unemployment almost doubling, I see property prices falling 20–30% by the end of 2025.

The optimistic outlook

If you’ve been paying attention over recent years, you already knew something like this was coming your way.

Back in March, I wrote about how I’m hoarding cash. Last month, I wrote about how cash is king. During the good times, we should be saving and investing so that we have cash to buy assets at reduced prices at times like these. Unfortunately, many people spend all their money during the good times and then wonder how they’ll get through the bad times.

Over the next few years, we’ll likely see bargains that many of us haven’t seen in our lifetimes.

I sold my main home a couple of years ago because prices had become insanely overvalued. I refused to buy another home until prices had dropped substantially. Those days are coming.

Fear & Greed

I always find it odd that the majority get the buying and selling cycles back to front. Most people get greedy when prices are high and get fearful when prices drop. They should be thinking the opposite.

When everyone else is getting greedy, that’s the perfect time to sell your assets. You’ll have buyers queuing up to buy them at silly prices.

When people are fearful, that’s when you need to step in and start buying. It’s when the fearful want to willingly get rid of their assets.

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