Britons face two years of tumbling household incomes with inflation set to soar to more than 13% and the economy plunging into the longest recession since the financial crisis, the Bank of England has warned.

Interest rates were raised to the highest level in nearly three decades, from 1.25% to 1.75%, worsening the pain for mortgage holders, before the Bank predicted the economy will plunge into the longest recession since the financial crisis in 2008.

In a dire outlook for UK economy, the Bank’s Monetary Policy Committee (MPC) forecast inflation peaking at 13.3% in October, the highest for more than 42 years.

The runaway costs are largely due to the soaring price of energy, as the fallout from Russian President Vladimir Putin’s war against Ukraine forced gas prices skywards.

Bournemouth Echo: The Bank of England has predicted a recession will begin later this year (PA)The Bank of England has predicted a recession will begin later this year (PA) (Image: PA)

Regulator Ofgem is expected to push up the cap on household energy bills to around £3,450 in October, the Bank said.

The energy price will help kick off a five-quarter recession as the Bank forecast gross domestic product (GDP) to shrink in every three-month period from October to the start of 2024. GDP will fall by as much as 2.1%, the Bank said.

This may raise the question of how a recession will affect people in the UK.

What does being in a recession mean?

BBC News reports that being in a recession means the value of the goods and services a nation produces falls for two financial quarters in a row.

It's a sign that the economy is doing badly.

How will a recession affect the UK?

As reported by Forbes, a recession usually means that unemployment levels rise, while people who keep their jobs may see a cut in pay or benefits and may be unable to negotiate future pay rises.

Graduates and school leavers could find it harder to get into a job after leaving education as a result of a recession and inequality may also increase.

BBC News reports that benefit recipients and those with fixed incomes are particularly likely to struggle.

Forbes also adds: "Business owners make fewer sales during a recession, and may even be forced into bankruptcy. The government tries to support businesses during these tough times, but it’s hard to keep everyone afloat during a severe downturn.

"With more people unable to pay their bills during a recession, lenders tighten standards for mortgages, car loans and other types of financing. You need a better credit score or a larger down payment to qualify for a loan that would be the case during more normal economic times."