UK Prepares for Recession as Mortgage Holders Struggle with Higher Rates
Britain is facing a looming recession as higher mortgage rates take a toll on homeowners, according to a warning from Moody's, a prominent ratings agency. Alongside the US and Germany, the UK is anticipated to enter a technical recession, but it is expected to be the only advanced economy with negative growth throughout 2023.
Catherine Mann, a policymaker at the Bank of England, acknowledges the difficulty of managing inflation in the UK compared to other countries. She emphasizes that the adjustment to sustainably higher interest rates will bring about significant consequences. The UK's susceptibility to recession is amplified by the prevalence of short-term fixed-rate mortgages, resulting in a decrease in household disposable income as rates continue to rise.
Moody's estimates that the average household will experience a substantial blow, equivalent to a 7.5% drop in disposable income. This further exacerbates the economic impact as home sales in the UK have plummeted to their lowest level since the implementation of pandemic-related restrictions. The surge in mortgage rates has played a significant role in this decline.
The European Central Bank echoes concerns, warning that higher interest rates are straining the resilience of households and businesses in the eurozone, thereby posing risks to market stability. These developments have already contributed to a decline in stock markets, with expectations growing for an interest rate hike by the Federal Reserve.
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