UK economy to avoid recession this year, says Bank

The UK economy will avoid falling into recession this year, the Bank of England has predicted.

The Bank forecast comes as it increased interest rates to 4.5% from 4.25% in an attempt to slow soaring price rises.

But the Bank admitted it will take longer for inflation to fall, due to food prices remaining elevated.

The increase in interest rates will mean higher mortgage and loan payments for some, but could benefit savers.

The change in outlook for the economy contrasts sharply with the Bank's forecast last November when it said the UK would enter the longest recession in its history, lasting two years.

It subsequently altered its forecast in February when it predicted a downturn lasting more than a year.

The UK economy grew by 0.1% in the final three months of 2022.

The Bank's Monetary Policy Committee (MPC) said on Thursday that growth is "likely to have been broadly flat around the turn of the year" and "was now expected to increase slightly in the second quarter compared with the 0.4% decline" previously forecast.

It reckons that when the effects of industrial action and the extra Bank Holiday for King Charles' Coronation are stripped out, the economy will grow by 0.2% in the first three months of the year as well as between April and June.

The Bank said this is "materially stronger" than expected than the last time it made its predictions in February.

Putting up interest rates can mean people are more likely to save money and less likely to borrow it.

In theory, this means they have less money to spend so will buy fewer things, which should help stop prices rising as quickly.

It also makes it harder for firms to borrow money and expand.