The Bank of England has issued a warning to Brits that a recession lies ahead for the UK.

The Bank has raised interest rates to 1% from 0.75% as it warned inflation is set to peak at over 10% this year and forecast the economy will contract in 2023, by 0.25% against the 1.25% growth it
predicted in February.

How you can reduce your energy bills

Bank of England warns energy prices will drive inflation in the UK

In its report, the Bank of England Monetary Policy Committee (MPC) said the jump in energy prices will drive the continued growth in inflation.

“Consumer Price Index inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4,” the MPC said.

“The majority of that further increase reflects higher household energy prices following the large rise in the Ofgem price cap in April and projected additional large increase in October.

“The price cap mechanism means that it takes some time for increases in wholesale gas and electricity prices, and their respective futures curves, to be reflected in retail energy prices.

“Given the operation of the price cap, consumer price inflation is likely to peak later in the United Kingdom than in many other economies, and may therefore fall back later.

“The expected rise in CPI inflation also reflects higher food, core goods and services prices.”

The bank warns real household disposable income and real post-tax labour income will fall sharply as energy prices feed through the system.

Bank of England predicts the UK economy will ‘flatline’ this year

The report makes for painful reading, with household income under severe pressure, unemployment set to begin to rise and the wider economy on the brink of recession.

Growth of 0.9% was better than the Bank expected in the first three months of 2022, though this looks to be the calm before the storm.

It predicts the economy will flatline in the second quarter before dropping by nearly 1% in the closing three months of 2022 as the full force of the expected October energy price cap increase is felt.

While the rate of unemployment will ease back further to as low as 3.6%, it will jump back up to 5.5% within three years, according to the Bank.

The Bank will also start drawing up plans on how to begin selling off some of its £847 billion in Government bonds – built up as part of its quantitative easing programme launched amid the 2008 financial crisis.

It has already said it may consider starting active sales of the gilt portfolio once rates reach 1%, and it confirmed on Thursday it would provide a further update on the plans at its August meeting.