The UK’s economic outlook has ‘deteriorated materially’, leaving households with a ‘very uncertain’ future, the Bank of England has warned.
Families’ budgets are likely to be ‘stretched’ in the coming months, the Bank said in its latest Financial Stability Report.
Meanwhile, commercial banks were told to double their defences against a potential recession.
Inflation – already at a 40-year high of 9.1% is expected to hit 11% by this autumn.
Rising prices forced the bank to raise interest rates for the fifth time in a row last month.
Acknowledging the new 1.25% rate will make debt repayments more costly for businesses and households, it added: ‘Given this, we expect households to become more stretched in the coming months.’
The double whammy of rising costs and rates mean will ‘likely lead to some business failures’, it added.
Britain’s gloomy financial outlook was said to be mirrored by the rest of the world, with Russia’s invasion of Ukraine chiefly to blame.
The impact of the war ‘could cause more disruption to global energy and food markets’, the report added, with further shortages on supermarket shelves and hikes to energy bills.
The Bank’s governor, Andrew Bailey, said the UK banking system ‘remains strong’ despite the weaker outlook but will be stress-tested later this year.
The resilience checks will make sure people’s deposits remain safe even if there are ‘deep simultaneous recessions in the UK and global economies, real income shocks, large falls in asset prices and higher global interest rates’.