UK could enter a recession if rates hit six percent

It suggests gross domestic product would shrink by around 0.3% this year and by 1.4% in 2024, assuming the Bank of England (BoE) decides to raise interest rates by 1.5% from its current benchmark of 4.5% after the quickest tightening cycle in 40 years.  

Speaking to Bloomberg, an economist for Bloomberg Economics Dan Hanson said: “Our view is that the pricing is probably overdone. But if this tightening cycle has taught us anything, it’s not to underestimate the persistence of inflation.  

“The BoE may judge a significant slump is what’s needed to prevent the inflation psychology in the UK from becoming embedded.”

Over the past few weeks, investors have raced to add to bets on higher rates – pricing in a surge to the highest level in two decades, with markets now betting rates will rise by at least a quarter point to 4.75% on Thursday, to five percent by August and almost six percent by next February.