HOUSEHOLDS were told yesterday to prepare for a 15-month recession and the highest inflation rate in 42 years.
In what was dubbed a Black Thursday for the economy, the Bank of England raised interest rates by 0.5 per cent — the biggest increase since 1995.
5Households were told yesterday to prepare for a 15-month recession and the highest inflation rate in 42 yearsCredit: Getty
5Inflation is forecast to hit 15%, pushing up the price of fuel and food
5Energy regulator Ofgem is set today to lift its price cap to £3,615 in October, with a further £250 rise in January and a promise of reviews every three months
5Energy bill hikes will come more often, Ofgem has said
Amid an almighty cost of living crisis, it warned of more hardship to come, with inflation expected to hit 13.1 per cent later this year — far outstripping wage growth.
It came as rocketing energy bills are set to reach £3,500 a year in October, with some analysts predicting they will even top £4,000 next January.
Analysts say the toxic combination means the average family will be £2,300 a year worse off — more than five times the Government’s current £400 offer of support.
Ministers were accused by critics of shirking in response to the crisis, with Boris Johnson on holiday, caretaker Chancellor Nadhim Zahawi away from his Whitehall desk and the Government fixated on the Tory leadership contest.

As expected, the Bank yesterday piled on the agony for homeowners, announcing an interest rate rise from 1.25 per cent to 1.75 per cent — its sixth increase in a row.
Governor Andrew Bailey said the move was necessary to control rampant inflation and warned of five successive three-month quarters of recession ahead.
He acknowledged the poorest would be hit hardest and said he had “huge sympathy and huge understanding for those who are struggling most”.
But he added: “If we don’t bring inflation back to target it’s going to get a lot worse precisely for those at the low income end of society.”

5Petrol prices and energy bills are pushing inflation to record highsCredit: Bank of England
Mr Bailey warned of further rises to inflation, which is currently at 9.4 per cent and more than double the four per cent he forecast a year ago.
He blamed Russia creating an energy shock which has sent the price of gas spiralling. 
Dismissing claims the Bank should have acted quicker on inflation, he said: “I don’t think anyone would have reasonably forecast a Ukrainian war a year ago.”
Energy regulator Ofgem said it would review its price cap every three months but the Bank said it expected costs to remain high to the end of 2023.
Meanwhile, wage growth is expected to stall at 5.25 per cent next year. That means successive years of falling take-home pay — not seen since the Bank’s records began in the 1960s.
Yesterday’s interest rate increase sparked fears that Britain’s nine million mortgage payers would struggle to cope while everything else was rising.
It will add £56 a month to a 25-year £200,000 tracker, meaning an extra £672 annual cost.
Figures from Rightmove also show that average rates for new first-time buyers will be £1,030 a month — £648 a year more than they are currently paying.
It is also £2,604 more than what they would have paid at the start of 2022.
Rightmove’s Tim Bannister said: “Today’s 0.5 per cent increase takes average monthly mortgage payments for new first time-buyers to over £1,000, if lenders pass on the rate rise to new applicants.
“This is approximately 40 per cent of the average first-time buyer salary, a level not seen since 2012.”
Higher interest rates — aimed at reducing consumer borrowing and spending — also feed into charges on credit cards, car finance and bank loans.
Analysts at Deutsche Bank believe the Bank could raise rates again in November to a peak of 2.5 per cent.
Unemployment rates, low in the pandemic owing to furlough schemes, are also expected to rise to 5.75 per cent.

Mortgage ticking time bomb
There were also fears that many of the nine million mortgage-payers in the UK — 6.8million of them in England — will struggle to cope with a 0.5 percentage point rate rise.
It could add about £74 a month — or £888 a year — to a typical variable rate mortgage. UK mortgage rates rose at their fastest pace in a decade in the six months to May.
Tim Bannister, Rightmove’s Housing Expert, said: “Today’s 0.5% increase in the base rate takes average monthly mortgage payments for new first time-buyers to over £1000 if lenders pass on the rate rise to new applicants.
“This is approximately 40% of the average first-time buyer salary, a level not seen since 2012.”
The latest jump will put yet more mortgage-payers long used to low rates in serious difficulties.
Greg Marsh, chief executive of cost-of-living forecast group, said: “Lenders can and must do whatever they can to help. 
“The last thing they need is a flood of damaging and expensive repossessions because borrowers can’t afford the new repayments.
Concerns were also growing for the millions of householders unable to switch mortgages which are due to expire in the next two years unless they pay punishing exit charges.
Mother-of-two Lydia Joseph, a researcher from Faversham, Kent, pays £1,718 a month on a mortgage fixed at two per cent.
She says that the only way she can get out of her current arrangement is to stump up £12,000 in fees upfront. 
She said: “That would wipe out all our savings overnight. 
“The whole thing feels like I’m facing down the barrel of a gun. 
“But if I don’t forfeit £12,000 now, my monthly mortgage payments next year could be more than half my household take-home pay.
“This situation has not really come up in the past two decades because we’ve had falling or very low interest rates.”
Have any lenders confirmed rate rises?
So far, HSBC and First Direct have confirmed that their standard variable mortgage rates will remain at their current levels for the time being – priced at 4.45%.
Santander announced hours after base rise that it’d be hiking its standard variable rates by 0.50%. This change will also affect all Alliance and Leicester mortgages and with rate rising from 5.49% to 5.99% at the beginning of September.
Barclays will also hike its standard variable rates by 0.50% from 5.74% to 6.24% effective on September 1.
Why are interest rates rising and will this help with inflation?
The Bank of England typically puts up interest rates in a bid to help lower inflation.
The cost of borrowing rises when the base rate increases. In turn, this reduces people’s disposable income, which in turn drives down demand, helping to slow any price rises.
The consumer price index (CPI) measure of inflation hit a new 40-year high in June – sitting at 9.4%.
Inflation is a measure of how the price of goods and services have changed over the past year.
When it goes up, prices on everyday items and essentials and bills also rise – which means budgets are being squeezed.
A rise in the base rate discourages borrowing and subsequently reduces spending power in the hope to bring inflation down.
What happens when there is a recession?
A country is in recession when its economy shrinks over a sustained period of time, rather than growing normally.
It is calculated using something called Gross Domestic Product (GDP), which in the UK is the value of all the goods and services added up in pounds. 
Generally speaking, if the GDP has fallen over two quarters (or six months), a country is said to be in recession.
The Bank of England’s recession forecasts suggest GDP will fall by 0.9% in the final three months of the year and negative growth will follow throughout 2023.
Job losses are a common symptom of recession, as companies try to cut their costs to stay afloat.
Businesses may also go into administration or go bust.
The 2008 recession, for example, saw the loss of high street stores including music retailer Zavvi, clothes shop Principles, and stalwart Woolworths.
The Government may make cut backs or raise taxes to try and shore up its finances – alternatively, it may decide to increase budgets to spend its way out of the problem.
If inflation soars – as it is at the moment – people will find their wages cannot keep up and their money doesn’t go as far as it used to.

The number of people in debt will likely to saw, and there could be more defaults on loans and mortgages or repossessions and bankruptcies – but it’s not expected to reach levels saw during the 2008/9 banking crisis and financial crash.
The UK last went into recession in 2020 after the coronavirus pandemic hit.