(Bloomberg) --

Economists are growing increasingly pessimistic about the UK, with the risk of a recession now seen as far more likely than not and interest rates expected to go higher than previously thought.

That’s according to the latest Bloomberg survey, which was carried out in the days after the Bank of England unleashed its biggest interest-rate hike in 27 years and warned of almost two years without a quarter of growth because of the cost-of-living crisis.

The half-point rate rise announced on Aug. 4 is expected to be followed by a similar increase in September as policy makers battle double-digit inflation, according to the median forecast in the survey. A subsequent quarter-point hike in November will take the BOE benchmark to 2.5%, above the previously forecast peak of 2%. 

That’s still leaves economists less hawkish than traders. Money markets are pricing in rates above 3% by February.

Unlike the BOE, economists see the UK avoiding a recession, with a small contraction in the fourth quarter followed by stagnation in the early months of 2023 and then a resumption of modest growth. However, the risks of a slump are growing. 

The probability of a recession is now estimated at 75%, up sharply from 44% in early July and higher than any time since September 2020 when the pandemic was raging. The Bloomberg survey was carried out between Aug. 5 and Aug. 11.



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