The UK is set to fall into it longest recession since the financial crisis and inflation will peak at more than 13pc as gas prices soar, the Bank of England has warned.
Decision makers hiked the Bank's base interest rate to 1.75pc from 1.25pc, the biggest single rise since 1995, as they tried to control the runaway inflation.
Consumer Prices Index inflation will hit 13.3pc in October, the highest for more than 42 years, if regulator Ofgem hikes the price cap on energy bills to around £3,450, the Bank's forecasters said.
The energy price will push the economy into a five-quarter recession - with gross domestic product (GDP) shrinking each quarter in 2023.
"Growth thereafter is very weak by historical standards," the Bank said on Thursday.
The dire economic conditions will see real household incomes drop for two years in a row, the first time this has happened since records began in the 1960s. They will drop by 1.5pc this year and 2.25pc next.
However, the recession will at least be shallower than the 2008 crash, with GDP dropping up to 2.1pc from its highest point.
Bank officials said that the depth of the drop is more comparable to the recession in the early 1990s.
Unemployment will start to rise again next year, according to the projections.
The Bank said that it expects inflation to come back under control in 2023, dropping below 2pc towards the end of the year.
"The United Kingdom is now projected to enter recession from the fourth quarter of this year," the Bank's Monetary Policy Committee (MPC) said.

Analysis

The Bank of England warnings that the UK will enter a recession last more than a year are alarming, but Norfolk's economic experts and business leaders say that the region is in a good position to weather the economic upheavals.

A recession is when the UK's economy - measured as gross domestic product (GDP) - as a whole contracts, but not all industries will be affected in the same way.

Eastern Daily Press: Dr Michael Brock, associate professor of economics at the UEADr Michael Brock, associate professor of economics at the UEA (Image: Michael Brock)

Associated professor of economics at the University of East Anglia (UEA), Michael Brock, said: "GDP looks at the total bottom line figure, it doesn’t necessarily mean that every sector in the UK is contracting and usually that isn’t the case.

"But there might be some that are contracting more than others and some that are growing, but the ones that are growing are not growing more to offset the ones that are shrinking so that, in total, you see a negative growth figure so the economy is shrinking.

"It doesn’t necessarily affect all industries equally and actually in a recession there are many industries that do quite well, particularly those that are low cost, budget type industries or shops, they do really well in a recession because people switch to consuming something else."

Business leaders have pointed out that during the recession of 14 years ago, Norfolk's diversity made the county far more resilient to the downturn compared to other regions of the UK.

Eastern Daily Press: Stefan Gurney, executive director of Norwich Business Improvement District (BID).Stefan Gurney, executive director of Norwich Business Improvement District (BID). (Image: ARCHANT EASTERN DAILY PRESS (01603) 772434)

Commenting on the strength of Norwich to weather economic upheavals, Stefan Gurney, executive director of Norwich BID, said that when looking at national research on the 2008 economic crash the city was "the third or fourth most recession-proof cities in the UK."

He said: "That was because of the diversity and the mix of businesses that are based in the city.

"Also, we are not reliant on one specific sector or one large employer, so that means that should a sector be adversely impacted the city still has more capabilities of riding things out.

"We've got two strong universities, we've got things like the research park - which is the largest employer of researchers in the whole of Europe - we've got a strong retail mix, we've got a very strong commercial sector including financial industries and professional services. We've got all that mix which means that actually, the city is in a good place."