UK told to brace for ‘deteriorated economic outlook’ in coming months

The UK’s economic outlook has “deteriorated significantly”, leaving households with a “very uncertain” future, the Bank of England warned.

Household 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 redouble their defenses against a potential recession.

Inflation – already at a 40-year high of 9.1% – is expected to hit 11% this fall.

Rising prices forced the bank to raise interest rates for the fifth time in a row last month.

Recognizing that the new 1.25% rate will make debt service more expensive for businesses and households, it added: “Given this, we expect households to come under more pressure in the coming months.”

The double whammy of rising costs and rates will “probably lead to some corporate insolvencies,” it added.

Britain’s bleak financial prospects would be mirrored by the rest of the world, especially the Russian invasion of Ukraine.

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 in energy bills.

The bank’s governor, Andrew Bailey, said the UK’s banking system “remains strong” despite the weaker outlook, but will be put to a stress test later this year.

The resilience controls will ensure that people’s deposits remain safe even if there are ‘deep simultaneous recessions in the UK and world economies, real income shocks, large falls in asset prices and higher global interest rates’.

The test was scheduled to take place in March but was postponed to September so economists could see how the Ukraine-Russia conflict would play out and affect global markets.