In Britain, the annual inflation rate, according to one measure, reached 10.1 percent in September, the highest level in 40 years, and is expected to rise even more before peaking. Call-in radio talk shows on the BBC are dominated by people who are anxious about being able to afford to heat and light their homes.
More on the Political Situation in Britain
The Bank of England has emphasized its determination to halt the upward march by raising interest rates even at the risk of throwing the economy into a recession. Last week, the bank once again lifted its key rate, and it predicted that the British economy would contract in the second half of this year and continue shrinking until the middle of 2024, producing what it called a “prolonged” recession.
A recession is traditionally defined as several months of a significant decline in economic activity.
Higher interest rates, which make borrowing money for mortgages and investments more expensive, curb spending by both businesses and consumers and can increase unemployment.
Yet Britain’s economy is also suffering from a series of self-inflicted wounds by the ruling Conservative Party. A widely criticized economic plan proposed in September by Liz Truss, the former prime minister, which included steep, unfunded tax cuts and big spending increases to help households afford rising energy bills, sent financial markets into a tizzy.